What are the effects of a monetary contraction? Show the AS-AD and IS-LM with two stages and the associated time path for the relevant variables(Y,P, r,π )
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What are the effects of a monetary contraction? Show the AS-AD and IS-LM with two stages and the associated time path for the relevant variables(Y,P, r,π )
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- What are the effects of a monetary contraction? Show the AS-AD and IS-LM with two stages and the associated time path for the relevant variables(Y,P, r )show why the self correction process involves only temporay periods of inflation or deflationMoney demand equation for a country is given by the equation (MP)d=e−λ(πe+r)+αY where πe is expected inflation, r is the real interest rate and Y is income. We assume that expected inflation equals actual inflation and also r and Y are considered as constant. Find the optimal level of inflation (π∗)which maximizes seigniorage revenue (S) ?
- Explain the relationship between inflation and the time value of money.There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target pai = 0.02 while the central bank in country B has anannual inflation target pai = 0.03. In the long run, we would expect the nominalexchange rate of country A to appreciate against country B at a rate of about 1% per year.True or False? Explain.The Bank of Canada maintains an operating band for the overnight interest rate of 50 percent of the bank rate. 50 percent of the inflation rate. 50 basis points below the bank rate. 50 basis points below the inflation rate.
- Suppose the Australian money supply (M) grows at 4% in 2021, real GDP (Y) grows at 2%, the real interest rate (r) is -1%, and the money demand function is as follows. (M/P)d = 0.7Y Based on the above information, answer the following questions. (a) Calculate the nominal interest rate (i), assuming the quantity theory of money holds. (b) Suppose the Reserve Bank of Australia (RBA) announces it will tighten its monetary policy in 2022, resulting in the Australian public expecting inflation to change to 1%. Assuming the nominal interest rate is unchanged at the 2021 level, what is the ex-ante real interest rate in 2022? (c) Assume the Fisher effect holds, and the real interest rate remains constant at the 2021 level. If expected inflation for 2023 is 2%, what will the nominal exchange rate be in 2023? Motivate your answer.This kind of inflation is called (cost-push, demand-pull) inflation. Inflation of this type is accompanied by (a decrease, an increase) in aggregate output.Inflation targeting consists of the Federal Reserve using monetary policy to reduce the annual inflation rate by a set amount cach year until the rate of inflation is negative using monetary policy to hold the price of a fixed basket of commodities (wheat, gold) to a 5-6 percent annual rate regularly stating an explicit goal for the rate of inflation over some future period, such as 2 percent inflation over the next two years identifying the sources of inflation and recommending structural changes in the economy that would relieve upward price pressures
- Inflation can be caused either by rapid growth rate of aggregate demand or by sluggish growth of aggregate supply. True or FalseIn a hyperinflationary economy, monetary items: a. Are not restated because they are already expressed in terms of the measuring unit current at year-end b. Are measured at fair value c. Are restated applying the general price index d. Are restated applying the specific price indexSuppose a country has a money demand function (M/P)d=kY, where k is a constant parameter. The money supply grows by 12 percent per year, and real income grows by 4 percent per year. What is the average inflation rate?
