Rule based policy pro-cyclical or countercyclical

Assignment Help Business Economics

Reference no: EM131169611

Below draw an AD/AS graph and a money market graph side-by-side. For the money market, use an upward sloping money supply curve and assume that the equilibrium interest rate in the money market is 5%. Also, assume that actual GDP is at full employment and that the equilibrium price level in the AD/AS graph is 100. Now shift AD to the right based on an increase in animal spirits. Show how the money market graph will adjust to a new equilibrium. Then explain and show what happens if the Fed acts to keep the equilibrium quantity of money constant. Is this rule based policy pro-cyclical or countercyclical? (explain).

Reference no: EM131169611

Questions Cloud

Global and domestic macroeconomics : We know the following about a country called Fribonia: Co=10,000 C1=0.8 T=10,000 Tr=2,500 G=7,500 I=5,000 QUESTIONS: (a) Formulate the corresponding macroeconomic model identifying each of its equations.

Is there subgame perfect equilibrium : You are considering entering a market serviced by a monopolist. You currently earn $0 economic profits, while the monopolist earns $5. If you enter the market and the monopolist engages in a price war, you will lose $5 and the monopolist will earn $1..

Find nash equilibrium for one-shot version of this game : You operate in a duopoly in which you and a rival must simultaneously decide what price to advertise in the weekly newspaper. If you each charge a low price, you each earn zero profits. If you each charge a high price, you each earn profits of $3. Fi..

Does your rival have dominant strategy : In a one-shot game, if you advertise and your rival advertises, you will each earn $5 million in profits. If neither of you advertises, your rival will make $4 million and you will make $2 million. Write the above game in normal form. Do you have a d..

Rule based policy pro-cyclical or countercyclical : Below draw an AD/AS graph and a money market graph side-by-side. For the money market, use an upward sloping money supply curve and assume that the equilibrium interest rate in the money market is 5%. Then explain and show what happens if the Fed act..

European countries experience an economic expansion : All European countries experience an economic expansion, raising incomes in each of the European countries. The government decides to decrease the amount it spends on the military.

Is the economy facing an inflationary-recessionary gap : Is the economy facing an inflationary or a recessionary gap? What fiscal policy can the government implement that might bring the economy back to long run macroeconomic equilibrium? Illustrate with a diagram and explain how the interest rate, real GD..

To measure the price elasticity of demand : To measure the price elasticity of demand, economists calculate: How much price changes relative the change in the quantity demanded. The absolute value of the percentage change in quantity demanded relative to the absolute value of the percentage ch..

Healthcare system as third-party payer system : In the text we discuss the U.S. healthcare system as a "third-party payer" system: When you receive healthcare in the U.S. generally you are not paying for it; you are paying for insurance, and your insurance pays for the healthcare.

User Account

All Pages