4. The hypothetical information in the following table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy. Year Potential GDP Real GDP Price level 2016 $17.7 trillion $17.7 trillion 114 2017 18.1 trillion 17.9 trillion 116 If the Fed wants to keep real GDP at its potential level in 2017, should it use an expansionary policy or a contractionary policy? Briefly explain your answer. b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2017. State whether each of the following will be higher of lower than if the Fed had taken no action. а. I. Potential GDP The inflation rate The Unemployment rate Real GDP II. III. IV. c. Draw an AD and AS graph to illustrate your answer. Be sure your graph contains LRAS , SRAS, and AD curves for 2016 and 2017, with and without monetary policy action.

4. The hypothetical information in the following table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy. Year Potential GDP Real GDP Price level 2016 $17.7 trillion $17.7 trillion 114 2017 18.1 trillion 17.9 trillion 116 If the Fed wants to keep real GDP at its potential level in 2017, should it use an expansionary policy or a contractionary policy? Briefly explain your answer. b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2017. State whether each of the following will be higher of lower than if the Fed had taken no action. а. I. Potential GDP The inflation rate The Unemployment rate Real GDP II. III. IV. c. Draw an AD and AS graph to illustrate your answer. Be sure your graph contains LRAS , SRAS, and AD curves for 2016 and 2017, with and without monetary policy action.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 3PA

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3 E 1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: Real GDP F3 Year 2018 2019 Cxpansionary Di bills or sold them? $ d wanted to keep real GDP at it R a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate F4 b) Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: Potential Real GDP $18.5 trillion 19.0 trillion I c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy. % 5 T F5 O Search A 6 $18.5 trillion 19.4 trillion F6 Y F7 &…
E 1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: 4¹ F3 Year 2018 2019 49 $ 4 a) If the Fed wanted to keep real GDP at its potential level in 2019, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T- bills or sold them? b) Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: R a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and…
Suppose that the reserve requirement for checkingdeposits is 10 percent and that banks do not hold anyexcess reserves.a. If the Fed sells $1 million of government bonds,what is the effect on the economy’s reserves andmoney supply?b. Now suppose that the Fed lowers the reserverequirement to 5 percent but that banks chooseto hold another 5 percent of deposits as excessreserves. Why might banks do so? What is theoverall change in the money multiplier and themoney supply as a result of these actions?
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Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominalGDP and the price level next year if the Fed keepsthe money supply constant?c. What money supply should the Fed set next yearif it wants to keep the price level stable?d. What money supply should the Fed set next yearif it wants inflation of 10 percent?
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F2 3 E D #3 1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: Real GDP F3 Year 2018 2019 b) Suppose t ZUTA If the Fed wanted to keep real expansionary pol R LL F h Real GDP Full employment real GDP The inflation rate d. The unemployment rate F4 I Potential Real GDP $18.5 trillion 19.0 trillion c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy. DII % 5 T G F5 O Search 6 F6 Y $18.5 trillion 19.4 trillion H J F7 in real GDP at its potential EDC & 7 U PrtScn F8 Price Level *00 142 150 8 t have u Home F9 K 9 End O F10 0 PgUp F11 P
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