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Chapter 16: Q.1 For Critical Thinking (page 366)

Why do you think that many people pay so much attention to likely future movements in the federal funds rate?

Short Answer

Expert verified

Many people pay so much attention to likely future movements in the federal funds rate it is the pinnacle money related to the power of the nation and from the exploration of social financial matters.

Step by step solution

01

introduction

Financial specialists utilize all suitable data as a base while shaping their assumptions regarding what's to come.

02

explanation

Individuals focus on the possible future developments of the Fed since it is based on that they structure their choices of ventures, reserve funds, wage climbs, requests and so on.

It is in the actual idea of the monetary specialists to benefit from the accessible data and past data to frame their assumptions.

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Most popular questions from this chapter

What do you think might be lost-and by whom - if the Fed were to follow an easily understood rule as a guide for conducting monetary policy? Explain.

Suppose that, initially, the U.S. economy was in an aggregate demand-aggregate supply equilibrium at point A along with the aggregate demand curve AD in the diagram below. Now, however, the value of the U.S. dollar suddenly appreciates relative to foreign currencies. This appreciation happens to have no measurable effects on either the short-run or the long-run aggregate supply curve in the United States. It does, however, influence U.S. aggregate demand.

a. Explain in your own words how the dollar appreciation will affect net export expenditures in the United States.

b. Of the alternative aggregate demand curves depicted in the figure- AD1versus AD2which could represent the aggregate demand effect of the U.S. dollar's appreciation? What effects does the appreciation have on real GDP and the price level?

c. What policy action might the Federal Reserve take to prevent the dollar's appreciation from affecting equilibrium real GDP in the short run?

Identify the key factors that influence the quantity of money that people desire to hold.

You learned in an earlier chapter that if a recessionary gap occurs in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust downward, causing the short-run aggregate supply curve to shift downward and to the right and pushing equilibrium real GDP per year back to its long-run value. In this chapter, you learned that the Federal Reserve can eliminate a recessionary gap in the short run by undertaking a policy action that increases aggregate demand.

a. Propose one monetary policy action that could eliminate the recessionary gap in the short run.

b. In what way might society gain if the Fed implements the policy you have proposed instead of simply permitting long-run adjustments to take place?

Evaluate how expansionary and contractionary monetary policy actions affect equilibrium real GDP and the price level in the short run.
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