Problem Set 6
1) Why
is it possible to change real economic factors in the short run simply by
printing and distributing more money?
2) Explain
why a stable 5% inflation rate can be preferable to one that averages 4% but
varies between 1–7% regularly.
3) Explain
the difference between active and passive monetary policy.
4) Suppose
the economy is in long-run equilibrium, with real GDP at $16 trillion and the
unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%.
a. Illustrate
the short run effects on the macro-economy by using the aggregate
supply-aggregate demand model. Be sure to indicate the direction of change in
Real GDP, the Price Level and the Unemployment Rate. Label all curves and axis
for full credit.
5) Suppose
the economy is in long-run equilibrium, with real GDP at $16 trillion and the
unemployment rate at 5%. Now assume that the central bank increases the money supply by 6%.
a. Illustrate
the short-run effects on the macro-economy by using the aggregate
supply-aggregate demand model. Be sure to indicate the direction of change in
Real GDP, the Price Level, and the Unemployment Rate. Label all curves and axis
for full credit.
ScholarMatic: Explanation & Answer
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