Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Business Economics Expert

Monetary policy effectiveness lag

You are given the following two IS curves that show how real GDP (Yt) in the current time period t depends on the current interest rate and interest rates in previous periods, where rt is the interest rate in time period t. Furthermore each time period corresponds to a quarter or three months.
1. Yt= 8800-25Rt-25Rt-t
- 25Rt-2 - 25Rt-3 - 20Rt-4 - 20Rt-5
- 20Rt-6 - 15Rt-7 - 15Rt-8 - 10Rt-9
2. Yt= 8400 - 5Rt - 5Rt-1
- 5Rt-2 - 5Rt-3 - 5Rt-4 - 10Rt-5
- 15Rt-6 - 15Rt-7 - 15Rt-8 - 20Rt-9

Suppose that the Fed can set interest rate and that for the last 10 quarters, the interest rate has been 4 percent.

(a) verify that initially real GDP equals 8000 for both IS curves.

(b) Suppose that the fed lowers the interest rate to 3 percent and keeps it there for the next 10 quarters.

(c) for each IS curve, what is the total increase in real GDP?

(d) for each IS curve, how many quarters does it take for the increase in real GDP to equal one-half of the total figure?

(e) given your answers in parts b-d, describe how the changes in the monetary policy effectiveness lag and the interest-rate multiplier affects how much and how long monetary policymakers must change interest rates in response to any given demand shock.

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M924469

Have any Question? 


Related Questions in Business Economics

Football coach ira blooper has just been fired as head

Football coach Ira Blooper has just been fired as head coach at a large university. His buyout amount is $7.5 million, and Blooper will be repaid (as per his contract) in monthly instalments over the next 4 years. If the ...

Verizons acquisition of yahooread the attached articles

Verizon's acquisition of Yahoo Read the attached articles about Verizon's acquisition of Yahoo. Utilizing your knowledge of external and internal analysis, business and corporate strategy, and corporate governance, pleas ...

Assignmentquestion assume that you have been assigned to

Assignment Question: Assume that you have been assigned to design a professional development program to provide y our schools mentor teachers with knowledge about adult learning and development that will be valuable in h ...

According to the law of supply and demanda if the price of

According to the law of supply and demand A) If the price of product or service goes down demand for it would decrease B) low demand for a product or service should drive its price down C) if the price of a product or se ...

There are several variables that combine to establish a

There are several variables that combine to establish a successful, sustainable team. Identifying the key components becomes especially challenging when the members are operating virtually. Identify potential barriers to ...

Distinguish between mobile subscriber isdn number and

Distinguish between mobile subscriber, ISDN number and mobile station roaming?

Florida citrus mutual an agricultural cooperative

Florida Citrus Mutual, an agricultural cooperative association for citrus growers in Florida, needs to predict what will happen to the price and output of Florida oranges under the conditions below. What are your predict ...

Bullbudget impact evaluation instructionsthe board of

• Budget Impact Evaluation Instructions The board of directors at your health care organization need some background on the budgetary process, and more specifically the Medicaid budget. Create a 15- to 20-slide impact ev ...

On the other hand nimrod is just as capable a hunter as

On the other hand, Nimrod is just as capable a hunter as ever; it takes him an average of only 2 hours to catch a deer. His fishing has suffered in the same way Grok's has, so that it also will take him 4 hours to catch ...

Explain why income would not be taxablegive examples of

Explain why income would not be taxable. Give examples of what constitutes Non-Taxable Income. Explain how the income would be excluded and give any formulas or calculations used to show the Non-taxable portion. Also exp ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate