KW_Macro_Ch_16_End_of_Chapter_Problems - chapter 16 >...

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>> Inflation, Disinflation, and Deflation chapter 16 1. In the economy of Scottopia, policy makers want to lower the unemployment rate and raise real GDP by using monetary policy. Using the accompanying diagram, show why this poli- cy will ultimately result in a higher aggregate price level but no change in real GDP. Real GDP Aggregate price level Y 1 LRAS SRAS 1 P 1 AD 1 E 1 PROBLEMS
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2. In which of the following examples would the classical model of the price level be relevant? a. There is a great deal of unemployment in the economy and no history of inflation. b. The economy has just experienced five years of hyperinflation. c. Although the economy experienced inflation in the 10% to 20% range 3 years ago, prices have recently been stable and the unemployment rate has approximated the nat- ural rate of unemployment. 3. The Federal Reserve regularly releases data on the U.S. monetary base. You can access that data at various websites, including the website for the Federal Reserve Bank of St. Louis. Go to and click on “Reserves and Monetary Base” and then on “Board of Governors Monetary Base, Adjusted for Changes in Reserve Requirements, Seasonally Adjusted (SA)” for the latest report. a. How much did the monetary base grow in the last month? b. How did this help in the government’s efforts to finance its deficit? c.
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KW_Macro_Ch_16_End_of_Chapter_Problems - chapter 16 >...

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