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Chapter 23: Q.17 (page 618)
Why did the Federal Reserve pursue inherently recessionary policies in the early s?
The central bank uses recessionary measures to keep the country's inflation rate under control and to keep the price of goods and services from rising too quickly.
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During , some Fed officials discussed the possibility of increasing interest rates as a way of fighting potential increases in expected inflation. If the public came to expect higher inflation rates in the future, what would be the effect on the short-run aggregate supply curve? Use an aggregate demand and supply graph to illustrate your answer.
Using an aggregate demand and supply graph, illustrate and describe the following:
a. The short-run effects of an increase in the money supply.
b. The long-run effects of an increase in the money supply.
鈥淭he appreciation of the dollar from 2012 to 2017 had a negative effect on aggregate demand in the United States.鈥� Is this statement true, false, or uncertain? Explain your answer.
In its statement dated June 14, 2017, the Federal Open Market Committee indicated that inflation 鈥渋s running somewhat below 2%.鈥� Go to http://research.stlouisfed .org/fred2/, and click on the Series ID link 鈥淐PIAUCSL鈥� (Consumer Price Index for All Urban Consumers: All Items-SA). Then click on the link 鈥淧ercent Change from Year Ago.鈥� What has happened to the inflation rate since the time of the last reported value in Figure 16?
The Problems update with real-time data in My Lab Economics and are available for practice or instructor assignment.
1. Go to the St. Louis Federal Reserve FRED database, and find data on real government spending (GCEC1), real GDP (GDPC1), taxes (WO06RC1 Q 027 SBEA), and the personal consumption expenditure price index (PCECTPI), a measure of the price level. Download all of the data into a spreadsheet, and convert the tax data series into real taxes. To do this, for each quarter, divide taxes by the price index and then multiply by .
a. Calculate the level change in real GDP over the four most recent quarters of data available and the four quarters prior to that.
b. Calculate the level change in real government spending and real taxes over the four most recent quarters of data available and the four quarters prior to that.
c. Are your results consistent with what you would expect? How do your answers to part (b) help explain, if at all, your answer to part (a)? Explain using the IS and A D curves.
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