Problem Set 6
1)Â Â Â Â Â Why is it possible to change real economic factors in the short run simply by printing and distributing more money?
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2)     Explain why a stable 5% inflation rate can be preferable to one that averages 4% but varies between 1–7% regularly.
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3)Â Â Â Â Â Explain the difference between active and passive monetary policy.
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4)Â Â Â Â Â Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%.
a.      Illustrate the short run effects on the macro-economy by using the aggregate supply-aggregate demand model. Be sure to indicate the direction of change in Real GDP, the Price Level and the Unemployment Rate. Label all curves and axis for full credit.
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5)Â Â Â Â Â Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment rate at 5%. Now assume that the central bank increases the money supply by 6%.
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a.      Illustrate the short-run effects on the macro-economy by using the aggregate supply-aggregate demand model. Be sure to indicate the direction of change in Real GDP, the Price Level, and the Unemployment Rate. Label all curves and axis for full credit.Â
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Posted 02 May 2017 07:05 PM
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