Assume that the united states economy is in long-run, Ask an Expert

Economics

Assume that the United States economy is in long-run equilibrium with an expected inflation rate of 4 percent and an unemployment rate of 6 percent. The nominal interest rate is 9 percent.

(a) Using a correctly labeled graph with both the short-run and long-run Phillips curves and the relevant numbers from above, show the current long-run equilibrium as point A.

(b) Assume now that the Federal Reserve decides to target an inflation rate of 3 percent. What open-market operation should the Federal Reserve undertake?

(c) Using a correctly labeled graph of the money market, show how the Federal Reserve's action you identified in part (c) will affect the nominal interest rate.

(d) How will the interest rate change you identified in part (d) affect aggregate demand in the short run? Explain.

(e) Assume that the Federal Reserve action is successful. What will happen to each of the following as the economy approaches a new long-run equilibrium? (i) The short-run Phillips curve. Explain. (ii) The natural rate of unemployment.

View complete question

Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9689575

Have any Question?Write your Review or question?

Related Questions in Macroeconomics

Question - a price-taking firm has the production function

Question - A price-taking firm has the production function Q = f(z 1 , z 2 ). The output price is P and the input price is w 1 and w 2 . There are two unusual things about this firm. First, rather than maximizing profit, ...

Question please do it by type not pic1 beginning in a state

Question: Please do it by type not pic. 1. Beginning in a state of equilibrium in our consumer equilibrium model (food is situated on the Y-axis and beverage on the X-axis). Graphically illustrate the income and substitu ...

1explain four types of unemployment2explain the advantages

1. Explain four types of unemployment 2. Explain the advantages and disadvantages of:(a) A flexible exchange rate regime (b) A fixed exchange rate regime 3. Suppose the Reserve Bank of Australia increases the interest ra ...

Question the united states of americas national minimum

Question: The United States of America's national minimum wage is currently at $7.25 per hour for most occupations in the private sector. Over the past several years, support for an increase in the minimum wage has come ...

Question - the statutes of the recently established

Question - The statutes of the recently established European Central Bank (ECB) state that its primary objective is to maintain price stability. How does this charter differ from that of the Fed? What significance does i ...

Question - suppose either computers or televisions can be

Question - Suppose either computers or televisions can be assembled with the following labor inputs: Units produced 1 2 3 4 5 6 7 8 9 10 Total labor used 3 7 12 15 25 33 42 54 70 90 The following production possibility c ...

Question consider the maximum entropy ensemble for the erd

Question: Consider the maximum entropy ensemble for the Erd ?os-R ´enyi random graph model P(G; ß), as discussed in class. Compute the Shannon entropy S[P] = S(ß) of this ensemble as a function of ß and N. As a function ...

Question suppose the price level in a particular economy

Question: Suppose the price level in a particular economy equals 1.3 and that the quantity of real GDP demanded at that price level is $1,200. An increase of 0.1 point in the price level reduces the quantity of real GDP ...

Question - a small island nation is endowed with

Question - A small island nation is endowed with indestructible coconut trees. These trees live forever and no new trees can be planted. Every year $1 million worth of coconuts fall off the trees and can be eaten locally ...

Please answer the following four discussion questions1

Please Answer The Following Four Discussion Questions 1. Explain four types of unemployment 2. Explain the advantages and disadvantages of: (a) A flexible exchange rate regime (b) A fixed exchange rate regime 3. Suppose ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Macroeconomics Expert