Explain and illustrate how to expansionary monetary policy affects the economy in the short run and long run using IS-LM, AS-AD, and Md-Ms curves under the assumption that the initial position is the potential output level. (important note: you have to define the axes of each figure)
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- Explain in detail the process of Monetary Policy transmission of an increase in the cash interest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cash rate ripple through the economy and lead to the target policy goal. (Three connected diagrams should be used: (1) money supply and demand (2) investment demand schedule (3) AS/AD diagram. Interest rates is the variable that connects the first and second diagram).Explain in detail the process of Monetary Policy transmission of an increase in the cash interest rate. Use relevant graphs to describe how a Central Bank action on the interest cash rate ripple through the economy and lead to the target policy goal. (Three connected diagrams should be used: (1) money supply and demand (2) investment đemand schedule (3) AS/AD diagram. Interest rates is the variable that connects the first and second diagram). NElaborate on how the following monetary policies can be used as a tool to mitigate the impact on economy where country is experiencing a (Hint: You may use basic principles/theory of economics to explain this. Graphic representation such as curve/graph would be useful to help on showing the effect to Aggregate Demand (AD), inflation (unemployment) or country growth. Aggregate demand Inflation Unemployment
- Explain in detail the process of Monetary Policy transmission of a decrease in the cashinterest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cashrate ripple through the economy and lead to the target policy goal. (Three connected diagramsshould be used: (1) money supply and demand (2) investment demand schedule (3) AS/ADdiagram. Interest rates is the variable that connects the first and second diagram).Q.2 Consider the following fixed-price (P=1) IS-LM model Y = C(Y*)+I(r)+G, Yª = Y - tY C = a +bY M = kY – hr M = y(7 - Y) y > 0 a. In this model explain the monetary policy of the central bank. b. Draw the phase diagram of the above model in r - Y space| c. Use your graph, trace out the short-run and the long-run effects of an increase in Y on equilibrium output, rate of interest, and M. Plot the trajectory of Y,r and M against time.in depth discuss: What are the key issues in the transmission of monetary policy and explain the ways through which the monetary policy actions impact upon the economy? use any graphs as needed as necessary.
- 3. Consider an alternative way of conducting monetary policy. Suppose that the cen- tral bank adopts a policy rule aiming at dampening fluctuations in aggregate economic activity. The policy takes the following form: i = io + iįY in which io > 0 and i > 0. This rule is called the Interest Rate Rule (IRR). 3.1) In the standard IS-LM diagram, show the IRR curve and its intersection with the IS curve.Q.1: In the next graph, the trend of "repo/reverse repo ratio" during recent months in Turkey is given. Considering the trend depicted in the figure answer each of the following separately: 2 1.8 1.6 1.4 a. Evaluate the change in monetary A 1.2 base and direction of monetary policy for AB interval. 1 0.8 0.6 b. Evaluate the change in monetary base and direction of monetary policy for BC interval. c. Evaluate the change in monetary base and direction of monetary policy for CD interval. May June July October February March December January August Septernb. NovemberWhich of the following statements regarding expansionary monetary policy is FALSE? a.) It increases the money supply. b.) It makes AD shift to the right. c.) It decreases consumer willingness to purchase goods, ceteris paribus. d.) It encourages job creation in the economy. Explain also
- CASE STUDY 18-4 Effect of Monetary Policy in the United States and Other OECD Countries Table 18.3 shows the effect of a 4 percent increase in the money supply (expansionary monetary policy) in the United States or in other OECD countries on the gross national product (GNP), consumer price index (CPI), interest rate, currency value, and current account of the United States and other OECD countries. The OECD—the Organization for Economic Cooperation and Development—included all 24 of the world’s industrial countries at the time of the exercise. The simulation results were obtained by using the Multi-Country Model of the Federal Reserve Board. Although the effects of an increase in the money supply are felt over several years, the results reported in Table 18.3 show the effect in the second year after the money supply increased. Part A of the table shows that a 4 percent increase in the U.S. money supply results (through the multiplier process) in a 1.5 percent…Why did the government use expansionary monetary policies in the late 1970s, and what was the principal negative macroeconomic effect of these policies? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.Explain in detail the process of Monetary Policy transmission of an increase in the cash interest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cash rate ripple through the economy and lead to the target policy goal. Three connected diagrams must be used: - (1) money supply and demand - (2) investment demand schedule - (3) AS/AD diagram. Interest rates is the variable that connects the first and second diagram.
