ECON 214 InQuizitive Assignment 11 solutions complete answers

ECON 214 InQuizitive Assignment 11 solutions complete answers 

 

Suppose you own a small business and have been thinking about expanding production, including hiring more workers. Until recently, interest rates at your bank have been too high for you to obtain a loan. However, the central bank decides to expand the money supply, which lowers interest rates to a level where you can take out a loan and expand production. Select the ways in which your actions affect the macroeconomy.

 

People’s thinking about inflation is forward-looking in the rational expectations theory, while the adaptive expectations theory only considers past experience.

 

The figure depicts the short-term effects of a contractionary monetary policy. Apply the labels to show how each element in the economy is affected.

 

What is a lasting effect of expansionary monetary policy?

 

Which of the following is true in the long run, following a deliberate expansion of the money supply?

 

Place in order the events that occur in the short run when the Federal Reserve enacts expansionary monetary policy.

 

The traditional short-run Phillips curve implies a powerful role for monetary policy. According to the theory, place the events in order based on what happens when the central bank unexpectedly expands the money supply.

 

Fill in the blanks to complete the passage about monetary neutrality.

 

Monetary neutrality is the idea that money is neutral in the –. It is a means of exchanging, tracking, and storing value, but is not a – of value. An economy does not become inherently more or less – by virtue of a change in the amount of money in circulation. Real productivity depends on resources, technology, and –.

 

Does each statement about inflation listed below have to do with adaptive expectations theory or rational expectations theory? Drag the correct label to each statement.

 

In year 4, however, the inflation rate shoots up to 10%. Assuming adaptive expectations, by what percentage will the Adaptistanian public underestimate the year 4 inflation rate?

 

Fill in the blanks to complete the passage about active versus passive monetary policy.

 

The – monetary policies of the 1960s were based on the short-run implications of the Phillips curve. It was assumed that the – relationship between unemployment and inflation would hold up in the long run. Recently, the Federal Reserve has moved to more – monetary policies that reflect the recognition that people adjust their expectations of future inflation. Recent Fed chairmen have taken actions that lead to – surprises in monetary policy.

 

Fill in the blanks to complete the passage about short- versus long-term effects of expansionary monetary policy.

 

In the short term, unexpected expansionary policy is –. In the long term, prices adjust and the effects of monetary policy –. What remains are – prices and correspondingly – money.

 

As shown in the figure, what is the basic problem that limited the Federal Reserve’s ability to move the economy back to full employment after the Great Recession had begun?

 

Fill in the blanks to complete the passage about the role individuals play in monetary policy.

 

When the Fed uses dollars to buy bonds from banks, it is attempting to – the number of dollars in circulation. However, if the banks are slow to lend the money out, or if potential borrowers are hesitant to go into debt in uncertain times, then the dollars end up staying in the bank’s vaults as excess –. This is thought to be one problem with the Fed’s “quantitative easing” efforts to end the Great – and a cause of the resulting –economic recovery.

 

Assume the economy begins with 0% inflation and a 5% natural rate of unemployment. Under the influence of expansionary monetary policy, the traditional short-run Phillips curve suggests that the economy will move to a point with higher inflation (for example, 5%) and lower unemployment (for example, 3%). Click on the figure to indicate where the economy will most likely move in the long run, assuming normal economic conditions.

 

Inflation only results in reduced unemployment when the expected inflation rate and actual inflation rate are the same.

 

The inflationary effect of expansionary monetary policy tends to affect output prices before input prices.

 

The Phillips curve graphs the relationship between which two variables?

 

In which sequence will events occur when the economy adjusts to an expansionary monetary policy, in the short run and then in the long run?

 

This figure illustrates what happens when the Federal Reserve buys a large amount of Treasury bonds. Place the following events in order.

 

The more predictable policy decisions by the Federal Reserve are, the more effective they are.

 

Which of the following is true in the long run, as depicted in the figure showing the effects of an expansionary monetary policy?

 

Suppose that the nation of Rationalia experiences the inflation rates shown from 2013 through 2015. If the Rationalian citizenry behaves according to the rational expectations theory, what will they expect the inflation rate to be in 2016?

 

Who is harmed by unexpected inflation?

 

Fill in the blanks to complete the passage about the benefits of expansionary monetary policy.

 

In the short term, expansionary policy benefits many people by increasing – and reducing –. However, it hurts suppliers whose prices are –. They have higher overall costs but their overall revenue does not go up –.

 

In 2007, the Federal Reserve began buying greater quantities of Treasury bonds than usual. What was the intent of this decision?

 

Each dot on the figure below represents a year between 1948 and 2015. Place each label on the area of the graph where you would expect to find the most dots for those years.

 

Suppose that in the nation of Adaptistan, the inflation rate is highly variable. Three years' worth of inflation rates are shown in the table.

 

Suppose that the nation of Adaptistan experiences the inflation rates shown from 2013 through 2015. If the Adaptistanian citizenry behaves according to the adaptive expectations theory, what will they expect the inflation rate to be in 2016?

 

What did Milton Friedman and Edmund Phelps predict in the late 1960s regarding inflation?

 

Which of the following monetary crises are seen as partial causes for the Great Depression?

 

Match the reasons why the effects of expansionary monetary policy were limited during each U.S. recession.

 

There are three main reasons why monetary policy doesn’t always work. Match each reason with its explanation.

 

The Phillips curve was first suggested as a description of the relationship between inflation and unemployment in the late 1950s, and data through the 1960s were consistent with its predictions. What happened in the 1970s?