« previous next »

Author Question: Suppose the central bank announces that it will pursue a monetary expansion in the current period ... (Read 45 times)

vicky

  • Hero Member
  • *****
  • Posts: 586
on: Jun 30, 2018
Suppose the central bank announces that it will pursue a monetary expansion in the current period and a monetary expansion in the future. Explain how the credibility of the central bank might influence the effectiveness of this monetary policy action and announcement of a future monetary policy action.
 
  What will be an ideal response?

Question 2

Suppose bank A has assets of 100, liabilities of 80, and capital of 20. Its capital ratio is
 
  A) 20.
  B) 25.
  C) 11.
  D) 10.


tandmlomax84

  • Sr. Member
  • ****
  • Posts: 323
Reply #1 on: Jun 30, 2018
Answer to Question 1

If individuals do not believe the Fed, we will observe the downward shift in the LM curve causing current rates to fall and current output to rise (with no shift in the IS curve). If individuals believe that the Fed will follow through with this in the future, the LM curve will shift down causing r to fall and Y to rise. The expectation that this will continue will cause individuals to expect lower future rates and higher future output. The lower future rates will increase current C and current I. The higher future Y will do the same. So, we will also see a rightward shift in the current IS curve. This will tend to increase the current r and current Y as well. In short, we would observe a shift in the IS curve causing current Y to increase even more. So, the credibility of the Fed plays a critical role in influencing the effectiveness of monetary policy.

Answer to Question 2

A


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

A serious new warning has been established for pregnant women against taking ACE inhibitors during pregnancy. In the study, the risk of major birth defects in children whose mothers took ACE inhibitors during the first trimester was nearly three times higher than in children whose mothers didn't take ACE inhibitors. Physicians can prescribe alternative medications for pregnant women who have symptoms of high blood pressure.

Did you know?

A headache when you wake up in the morning is indicative of sinusitis. Other symptoms of sinusitis can include fever, weakness, tiredness, a cough that may be more severe at night, and a runny nose or nasal congestion.

Did you know?

Since 1988, the CDC has reported a 99% reduction in bacterial meningitis caused by Haemophilus influenzae, due to the introduction of the vaccine against it.

Did you know?

To prove that stomach ulcers were caused by bacteria and not by stress, a researcher consumed an entire laboratory beaker full of bacterial culture. After this, he did indeed develop stomach ulcers, and won the Nobel Prize for his discovery.

Did you know?

Thyroid conditions cause a higher risk of fibromyalgia and chronic fatigue syndrome.

Bank reconciliation form. Bank reconciliation form.
Major Degenerative Diseases of the Central Nervous System Major Degenerative Diseases of the Central Nervous System
Role of Ras protein in a central growth factor activation pathway Role of Ras protein in a central growth factor activation pathway
Suppose the market supply curve is p = 5Q. If price increases from 10 to 15, the change in ... Suppose the market supply curve is p = 5Q. If price increases from 10 to 15, the change in ...
Digital illustration of a fish that was believed to have become extinct during the Cretaceous Period Digital illustration of a fish that was believed to have become extinct during the Cretaceous Period
Video: Mitosis step-by-step

For a complete list of videos, visit our video library