Discuss the costs of inflation (give two negatives) and the costs to the economy if the FED uses contractionary Monetary policy to fight it (give at least one negative).

Q: In 2004 the Fed began raising interest rates? What is likely to happen to the price level and real…

A: The macroeconomic equilibrium in an economy is determined by the aggregate demand and aggregate…

Q: If the unemployment rate is falling from 4 to 3%, while the inflation rate is increasing from 2% to…

A: Monetary Policy is the process of implementing certain policies that influence the money supply in…

Q: Holding money demand constant, if the Fed pursues loosemoney and increase money supply, which will…

A: Loose monetary policy refers to expansionary monetary policy, which is used with the aim to increase…

Q: Economists who are skeptical of the Fed's ability to fine tune the economy argue that lags in the…

A: Economists argue that is central banks are unable to respond to future crisis as it is difficult to…

Q: employment and low inflation

A: The Phillips curve depicts the relationship between the inflation rate and unemployment rate. It…

Q: Suppose that the current inflation rate is at 9% and the unemployment rate is 3%. Given this data.…

A: Monetary policy is the policy that is used to control the money supply in an economy to maintain the…

Q: Suppose the economy is initially at long run equilibrium, when there is an unexpected decrease in…

A: When an economy is in long-run equilibrium and the price of oil falls unexpectedly, the demand for…

Q: . What action should the Federal Open Market Committee (FOMC) take if it sees signs of inflation…

A: 1. Over the long run, the Committee aims for maximum employment and inflation of 2%. Because…

Q: What can the Fed do to reduce inflation when the government is spending too much money in the…

A: Inflation: It refers to a situation in which the prices of the goods and services in the economy…

Q: The inflation rate is 12 percent, and the central bank is considering slowing the rate of money…

A: The government and the central bank of the country use the contractionary monetary policy to reduce…

Q: The economy's unemployment rate is 2% and the inflation rate is 18%. The most appropriate policy for…

A: As we know that Phillips curve shows the relationship between inflation and Unemployment rate . And…

Q: If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will…

A: A decrease in the money supply or the increment in the short-term interest rates constitutes a…

Q: If the economy is currently hitting the Fed's inflation target and GDP exactly equals the trend GDP,…

A: The Taylor Rule(mentioned in the question) is: F=L+1.5(π-π')+0.5G Where F is the Federal-funds-rate…

Q: Suppose the economy has been at full employment for the past two years with a 4 percent inflation…

A: GDP is the value of final goods and services produced in the country within a given period of time

Q: Which of the below statements DOES NOT CORRECTLY describe the immense power or policy choice of the…

A: In the US, the federal reserve is considered as the central bank and works as the bank for the…

Q: Fill in the blanks in the following statements to explain when (business cycle) the Fed will use…

A: The inflation rate is the rate at which the prices of products and services increases in an economy.…

Q: Which one of these policies should the Fed engage in if unemployment is very high and inflation is…

A: Answer - Need to find- Which one of these policies should the Fed engage in if unemployment is very…

Q: A movement to the left along a given short-run Phillips curve could be caused by   a.…

A: The monetary policy is adopted by the central bank to endure price stability by targeting the…

Q: Explain three tools of monetary policy from central bank and how these tools increase and decrease…

A: Three tools of monetary policy from central bank are:- 1) Open market operations:- This is tool of…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic…

A: Since you have posted a question with multiple parts, we will solve only the first part. To get…

Q: Fill in the blanks in the following statements to explain when (business cycle) the Fed will use…

A: Fed uses contractionary monetary policy during expansion and expansionary monetary policy during…

Q: 7)According to the Taylor rule, if inflation has risen by 4 percentage points above its target of 2…

A: Taylor's rule states that the Fed group should increase the fund rate if the inflation rate is…

Q: Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation…

A: Schedule for inflation and real interest rates based on Fed targets -

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic…

A: Since you have posted a question with multiple parts, we will solve only the first part. To get…

Q: Why is there no upward or downward pressure on the inflation rate when the economy is at full…

A: Inflation refers to the rise in general price levels in an economy. Philips curve shows the…

Q: Economics If the Fed wants to move from a point on the​ short-run Phillips curve representing high…

A: A Phillips curve represents the relationship between the rate of unemployment and the rate of the…

Q: When the Fed increases the money supply, we expect   a. interest rates and stock prices to rise.…

A: When Fed increases the money supply, we expect interest rate to fall and stock price to rise. That…

Q: What do you understand by demand-pull and cost-push inflation? Which monetary policy should be…

A: Inflation in an economy is related to rise in prices of commodities or decrease in purchasing power…

Q: According to the policy statement of September 2020, the Federal Reserve's current inflation target…

A: According to the policy statement of september 2020, the federal reserve current inflation target is…

Q: Suppose there is an increase in the oil price in the United States. Which of the monetary policies…

A: Federal reserve is the central bank of United States which is responsible of flow of money into the…

Q: Suppose the economy is in long-run equilibrium, as shown on the following graph. Now suppose a wave…

A: When there is business pessimism in the economy then the spirit will be negative and hence aggregate…

Q: Describe how rapid inflation can undermine money's ability to perform its three basic functions and…

A: Money serves several functions such as a medium of exchange, a unit of account, and store value.…