PART I: Multiple Choice/Fill-In
... 1. List three reasons why the government spending multiplier may not reach its full value when expansionary fiscal policy is enacted. Briefly describe why each of these factors causes the multiplier to decrease. There are several factors that decrease the size of the government spending multiplier: ...
... 1. List three reasons why the government spending multiplier may not reach its full value when expansionary fiscal policy is enacted. Briefly describe why each of these factors causes the multiplier to decrease. There are several factors that decrease the size of the government spending multiplier: ...
CHAPTER 26
... – Purchases of bonds with extra cash balances will push up prices and reduce interest rates: • Cost-of-capital effect—increased investment spending • Wealth effect—higher bond prices increases consumer wealth which is translated into more spending • Exchange rate effect—lower interest rates drives d ...
... – Purchases of bonds with extra cash balances will push up prices and reduce interest rates: • Cost-of-capital effect—increased investment spending • Wealth effect—higher bond prices increases consumer wealth which is translated into more spending • Exchange rate effect—lower interest rates drives d ...
the Lecture Notes
... – Purchases of bonds with extra cash balances will push up prices and reduce interest rates: • Cost-of-capital effect—increased investment spending • Wealth effect—higher bond prices increases consumer wealth which is translated into more spending • Exchange rate effect—lower interest rates drives d ...
... – Purchases of bonds with extra cash balances will push up prices and reduce interest rates: • Cost-of-capital effect—increased investment spending • Wealth effect—higher bond prices increases consumer wealth which is translated into more spending • Exchange rate effect—lower interest rates drives d ...
The Role of Money in Saudi Arabia: A Dynamic Analysis
... suggested a practical way to test for relationship between money and income using Granger’s concept of causality. Since then, several researchers have applied this technique to the analysis of money-income relationship (i.e. Lee and Li (1983), and Quddus et al.(1989), among others). These studies ut ...
... suggested a practical way to test for relationship between money and income using Granger’s concept of causality. Since then, several researchers have applied this technique to the analysis of money-income relationship (i.e. Lee and Li (1983), and Quddus et al.(1989), among others). These studies ut ...
Commentary: How Should Monetary Policy Be ∗ Michael Woodford
... inflation and the output gap under the two policies, and the resulting expected values of the discounted sum of losses (2).8 This example illustrates an important general point, which is that optimal policy will generally be history-dependent in ways that are unrelated to any constraints that past e ...
... inflation and the output gap under the two policies, and the resulting expected values of the discounted sum of losses (2).8 This example illustrates an important general point, which is that optimal policy will generally be history-dependent in ways that are unrelated to any constraints that past e ...
SOUTHWESTERN MICHIGAN COLLEGE
... Make predictions based on the simple quantity theory of money. Explain monetarism in an AD-AS framework. Identify the causes of one-shot inflation. Identify the cause of continued inflation. Explain the difference between the liquidity, income, price-level, and expectations effects and explain how e ...
... Make predictions based on the simple quantity theory of money. Explain monetarism in an AD-AS framework. Identify the causes of one-shot inflation. Identify the cause of continued inflation. Explain the difference between the liquidity, income, price-level, and expectations effects and explain how e ...
the optimal path of monetary expansion
... Net purchases of foreign exchange by the central bank can be invested through member banks. Both absorption and injection would be carried out through the sale and purchase of CDC’s. Neutralize only the changes in the money supply that would cause the path of monetary expansion to deviate from ...
... Net purchases of foreign exchange by the central bank can be invested through member banks. Both absorption and injection would be carried out through the sale and purchase of CDC’s. Neutralize only the changes in the money supply that would cause the path of monetary expansion to deviate from ...
Will the U.S. Economy Face Deflation?
... 3. One idea brainstormed by a Fed analyst in 1999 was to add a magnetic strip to dollar bills. What would be the purpose of that strip? Click for answer. 4. Which EU country is the first to formally breach the EU’s deficit limit of 3% of GDP? Click for answer. 5. What action did the Fed take on Nove ...
... 3. One idea brainstormed by a Fed analyst in 1999 was to add a magnetic strip to dollar bills. What would be the purpose of that strip? Click for answer. 4. Which EU country is the first to formally breach the EU’s deficit limit of 3% of GDP? Click for answer. 5. What action did the Fed take on Nove ...
Instructor`s Manual
... The current bank regulatory system in Canada has banking institutions supervised by three federal agencies: the Bank of Canada, the Office of the Superintendent of Financial Institutions, and the CDIC. However, this system of multiple regulatory agencies with overlapping jurisdictions creates a syst ...
... The current bank regulatory system in Canada has banking institutions supervised by three federal agencies: the Bank of Canada, the Office of the Superintendent of Financial Institutions, and the CDIC. However, this system of multiple regulatory agencies with overlapping jurisdictions creates a syst ...
NBER WORKING PAPER SERIES INFLATION, TAX RULES AND THE ACCUMULATION
... of Economics, Harvard University, and President, National Bureau of Economic Research. This paper is part of the NBER study of Capital Formation. I am grateful to my colleagues at the NEER for numerous dIscussions of this subject and for comments on an earlier draft, This paper will be presented at ...
... of Economics, Harvard University, and President, National Bureau of Economic Research. This paper is part of the NBER study of Capital Formation. I am grateful to my colleagues at the NEER for numerous dIscussions of this subject and for comments on an earlier draft, This paper will be presented at ...
Deflation fears in developed economies
... characterised by a higher rate of savings, this type of income reallocation reduces consumption demand. Tax revenues fall as a combined effect of a loss of demand and price decreases, while the costs of financing the government debt fail to decline, and thus the deficit may increase. Even this may n ...
... characterised by a higher rate of savings, this type of income reallocation reduces consumption demand. Tax revenues fall as a combined effect of a loss of demand and price decreases, while the costs of financing the government debt fail to decline, and thus the deficit may increase. Even this may n ...
Chapter 5 - Dr. George Fahmy
... income received by individuals. Personal disposable income is the amount of income individuals have to spend, whereas personal income is the income received, some of which is paid to the government as taxes. Personal disposable income equals personal income less personal income taxes. ...
... income received by individuals. Personal disposable income is the amount of income individuals have to spend, whereas personal income is the income received, some of which is paid to the government as taxes. Personal disposable income equals personal income less personal income taxes. ...
Chapter 7
... inflation rate: (Click on, in sequence, Canadian Statistics > Tables by subject > Prices and price indexes > Consumer price index > Consumer price index, historical summary) interest rates: (Click on, in sequence, Canadian Statistics > Tables by subject > Government > Monetary authorities > Exch ...
... inflation rate: (Click on, in sequence, Canadian Statistics > Tables by subject > Prices and price indexes > Consumer price index > Consumer price index, historical summary) interest rates: (Click on, in sequence, Canadian Statistics > Tables by subject > Government > Monetary authorities > Exch ...
Questions on Aggregate Supply and Aggregate Demand
... 18. Classical economist David Hume observed that as the money supply expanded after gold discoveries a. prices and output both increased immediately. b. prices increased immediately while output remained unchanged. c. it took time for prices to rise; in the meantime output was lower. d. it took tim ...
... 18. Classical economist David Hume observed that as the money supply expanded after gold discoveries a. prices and output both increased immediately. b. prices increased immediately while output remained unchanged. c. it took time for prices to rise; in the meantime output was lower. d. it took tim ...
Prices and Exchange Rates In frictionless markets
... Reserve Bank, the central bank, is worried about an unjustified level of the U.S. stock market and has been publicly considering raising interest rates 50 basis points (.5%). The 90-day forward exchange rate quoted to Miyake by other Japanese banks are all about the same, U109.80/$. The current 90-d ...
... Reserve Bank, the central bank, is worried about an unjustified level of the U.S. stock market and has been publicly considering raising interest rates 50 basis points (.5%). The 90-day forward exchange rate quoted to Miyake by other Japanese banks are all about the same, U109.80/$. The current 90-d ...
Lecture Outline
... How Monetary Policy Influences Aggregate Demand The Theory of Liquidity Preference Money Demand Any asset’s liquidity refers to the ease with which that asset can be converted into a medium of exchange. Thus, money is the most liquid asset in the economy. The liquidity of money explains why p ...
... How Monetary Policy Influences Aggregate Demand The Theory of Liquidity Preference Money Demand Any asset’s liquidity refers to the ease with which that asset can be converted into a medium of exchange. Thus, money is the most liquid asset in the economy. The liquidity of money explains why p ...
Chapter 10 Aggregate Demand and Aggregate Supply
... recessionary conditions as with previous shocks. C. In 2005, conflict in the Middle East, combined with rapidly rising demand for oil in India and China, pushed oil prices above $60 per barrel (and over $70 per barrel in July 2006). U.S. inflation rose in 2005, but not core inflation (inflation rate ...
... recessionary conditions as with previous shocks. C. In 2005, conflict in the Middle East, combined with rapidly rising demand for oil in India and China, pushed oil prices above $60 per barrel (and over $70 per barrel in July 2006). U.S. inflation rose in 2005, but not core inflation (inflation rate ...
Inflation Report 3/2000
... taxes and electricity prices, and adjusted for the revision of the house rent index, is estimated at 2¾% in 2000. In the following years, the underlying rise in prices is expected to be the same as the overall rise in consumer prices. Consumer price inflation in 2000 must be seen in the light of the ...
... taxes and electricity prices, and adjusted for the revision of the house rent index, is estimated at 2¾% in 2000. In the following years, the underlying rise in prices is expected to be the same as the overall rise in consumer prices. Consumer price inflation in 2000 must be seen in the light of the ...
CHAP1.WP (Word5)
... proposition of new classical macroeconomics implies that feedback policy rules are ineffective in changing the level of output; thus, a CGRR that is expected to be maintained will minimize expectational errors and eliminate the need for activist stabilization policies. Second, new classical macro im ...
... proposition of new classical macroeconomics implies that feedback policy rules are ineffective in changing the level of output; thus, a CGRR that is expected to be maintained will minimize expectational errors and eliminate the need for activist stabilization policies. Second, new classical macro im ...
Inflation
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the consumer price index) over time. The opposite of inflation is deflation.Inflation affects an economy in various ways, both positive and negative. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.Inflation also has positive effects: Fundamentally, inflation gives everyone an incentive to spend and invest, because if they don't, their money will be worth less in the future. This increase in spending and investment can benefit the economy. However it may also lead to sub-optimal use of resources. Inflation reduces the real burden of debt, both public and private. If you have a fixed-rate mortgage on your house, your salary is likely to increase over time due to wage inflation, but your mortgage payment will stay the same. Over time, your mortgage payment will become a smaller percentage of your earnings, which means that you will have more money to spend. Inflation keeps nominal interest rates above zero, so that central banks can reduce interest rates, when necessary, to stimulate the economy. Inflation reduces unemployment to the extent that unemployment is caused by nominal wage rigidity. When demand for labor falls but nominal wages do not, as typically occurs during a recession, the supply and demand for labor cannot reach equilibrium, and unemployment results. By reducing the real value of a given nominal wage, inflation increases the demand for labor, and therefore reduces unemployment.Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. However, money supply growth does not necessarily cause inflation. Some economists maintain that under the conditions of a liquidity trap, large monetary injections are like ""pushing on a string"". Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.Today, most economists favor a low and steady rate of inflation. Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.