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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. The Federal Reserve can eliminate a recessionary gap in the short run by
undertaking a policy action that increases aggregate demand.Which of the following is one
monetary policy action that could eliminate the recessionary gap in the short
run?
A.The Fed can increase the money supply through an open market purchase of Treasury securities.
B.The Fed can decrease the money supply through an open market purchase of Treasury securities.
C.The Fed can lower taxes.
D.The Fed can increase the money supply through an open market sale of Treasury securities.
2.
In what way might society gain if the Fed implements an
anti-recessionary policy instead of
simply permitting
long-run adjustments to take
place?
A.The
Fed's policy can move the economy to
long-run equilibrium sooner.
B.The
Fed's policy can reduce unemployment sooner.
C.The
Fed's policy can shorten the adjustment period.
D.All of the above.
3.
Suppose that initially the money supply is
$3
trillion, the price level equals 3
, the real GDP is
$5
trillion in
base-year dollars and income velocity of money is 5. Then suppose that the quantity
of money in circulation remain fixed but the income velocity of money doubles.
If real GDP remains at its
long-run potential
level, calculate the equilibrium price level. ______
4.
Decreases in the money supply affect the economy indirectly
because
A.interest rates increase, causing planned investment to decrease, which causes
a decrease in aggregate demand.
B.interest rates decrease causing planned investment to increase, which causes an increase
in aggregate demand.
C.people spend excess money balances and thus, aggregate demand increases
D.people have insufficient money balances and thus aggregate demand
E.There is no indirect effect of the money supply on the economy.
This question was answered on: May 23, 2022
Solution~00021147719501.zip (25.37 KB)
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