Economics : Eco2 Chpt15redo

Answer: target interest rate by 50 basis points, or 0.5%. It would achieve this by decreasing the moneysupply.Because there is less money in the financial system, the quantity of money demanded decrease whichmeans that bond issuers must raise the interest they pay to sell bonds.Answers: As a result of the Feds policy, the interest rate falls to 4%.When the Fed sells the bonds; the amounts of money in the circulation in the economy increase. Thisdrives interest rates down, which causes businesses to invest more. The result is increase in aggregatedemand, the extent of which is determined by simple spending multiplier.Answers: the potential output of this economy is 12trillion.Since real GDP is currently, a recessionary gap of 2trillion.Answers: Along SRAS1, wages would 145. Point A is 145; this means that real wages are more than hadbeen negotiated, which will increase unemployment. Labor market conditions would cause nominalwages to decrease, shifting the SRAS curve to the right.To do so, the Fed will increase the money supply, which will decrease firms an incentive to increaseinvestment, shifting the AD curve to the right.The economy will likely have relatively high unemployment. It risks causing relatively high inflation.Answer: GDP in this economy is $6 trillion..the velocity of money is 3, then money supply would be 3.0 trillion.Based on new price level, new supply in long run in long run: 2.5 $Because the velocity is assumed to be const ...


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