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... shift the aggregate demand curve to the right  ○ The size of the shift in the AD curve resulting from tax change is also  affected by the multiplier and crowding out effects.   ■ When governments cut taxes and stimulates consumer spending,  earnings and profits rise, which furthers consumer spending ...
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... Stabilization Policies With a Fixed Exchange Rate  Fiscal Policy • How does the central bank intervention hold the exchange rate fixed after the fiscal expansion? – The rise in output due to expansionary fiscal policy raises money demand. – To prevent an increase in the home interest rate and an a ...
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Limits of Monetary Policy in Theory and Practice

... boom and the related financial market excesses. However, the deviations from Taylor’s preferred policy were modest. Such sensitivity of outcomes to those misses is hard to square with the propositions that the Fed can only keep the short-term real interest rate low for a limited time and that it is ...
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Greenspan, the Wizard of Bubbleland
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Chapter 30: Money Growth and Inflation Principles of Economics, 7
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...  Say’s Law – total supply of goods and services will equal total demand derived from consumption; a general glut (economy-wide over-supply) is impossible  money illusion – nominal vs. real confusion (wages or prices)  crowding out – fiscal policy is ineffective because a rise in government spendi ...
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... may impair the effectiveness of monetary policy. This means not only that monetary policy might become less effective in achieving price stability, but also that it could have perverse effects on financial stability itself. I will consider two cases. The first case occurs when the market turmoil has ...
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Chapter 13

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... money, since the former includes currency and reserves, and the latter currency and deposits (of which reserves are a fraction). 4. In an open market operation where the central bank increases money supply by buying bonds, the price of bonds will fall. False. An increase in the supply of money reduc ...
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... banks. Perhaps we also want to feel this way because we know that central banks are here to stay, and we have tremendous hope that they will do a better job the next time around, since we see no plausible solution otherwise. A person can be severely attacked if they even suggest that they have the a ...
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Quantitative easing

Quantitative easing (QE) is a type of monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions by using electronically created money, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. This differs from the more usual policy of buying or selling short-term government bonds to keep interbank interest rates at a specified target value.Expansionary monetary policy to stimulate the economy typically involves the central bank buying short-term government bonds to lower short-term market interest rates. However, when short-term interest rates reach or approach zero, this method can no longer work. In such circumstances monetary authorities may then use quantitative easing to further stimulate the economy by buying assets of longer maturity than short-term government bonds, thereby lowering longer-term interest rates further out on the yield curve.Quantitative easing can help ensure that inflation does not fall below a target. Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term, due to increased money supply), or not being effective enough if banks do not lend out the additional reserves. According to the International Monetary Fund, the US Federal Reserve, and various other economists, quantitative easing undertaken since the global financial crisis of 2007–08 has mitigated some of the economic problems since the crisis.
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