uaLIOH 8YUll employment and very low levels of inflation. in the course of the e
ID: 1112453 • Letter: U
Question
uaLIOH 8YUll employment and very low levels of inflation. in the course of the explanation, be sure to explain why the AD curve slopes down to the right, and why the AS curves have their characteristic shapes. What is expansionary fiscal policy? Use your diagram in a. to show and explain how this might potentially solve the economic effects of the crisis. What is expansionary monetary policy? What are the mechanisms through which expansionary monetary policy might help resolve the problem in a.? b. c. 2. Lags The business cycles moves from expansion to peak to contraction to trough. a. b. c. Draw a diagram that illustrates this. Discretionary fiscal and monetary policy face lags. Briefly explain what these lags are in each case. Show and explain how cycle. the presence of lags could, in theory, amplify rather than dampen the business 3. Short questions Indicate whether the following statements are true, false, or uncertain, and why. Crowding out occurs when a smaller money supply squeezes investment. An automatic stabilizer is a feature of an economic system, such as unemployment insurance or the graduated income tax, that moderates swings in the business cycle. Now that there are more British pounds per dollar than six months ago, the GBP has appreciated. In setting monetary policy, the Fed mainly targets the discount rate. a) b) c) d) 4. Exchange Rates a. For each of the following currencies, find the exchange rate (a) recently, and (b) about six months ago. GBP Euro [EUR] Mexican peso [MXN] Vietnamese dong [VND] Chinese yuan renminbi [CNY] Japanese yen [JPY] Nigerian naira INGNExplanation / Answer
3.a) True. Crowding effect occurs when an increase in government spending increases reducing private investments lead to lesser money supply, raises the interest rate and reduces private investment
b) True. Automatic stabilizers are features of the tax and transfer systems which try to maintain balance in economic. Here unemployment insurance and graduate income tax operates as buffers which would take pressure during tough economic situations.
c) False, If GBP appreciates then lesser British pounds would be exchanged for dollar, while it deprecates then more British pounds need to be fetched for dollar.
d) False, in setting monetary policy the Fed mainly targets federal funds rate through which inflation and growth can be kept under control. The expansionary or tight monetary policies are affected through federal funds rate.
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