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Unformatted text preview: . Q4 Slide 30. Q5 The question implies that the economy is initially over-heated and needed a contractionary monetary policy. ‘Does too late’ means that the economy might have been restored to its potential GDP when the Fed did it. As a result, ‘too large a decrease in GDP’ is observed. (see slide 31 for the opposite case). Q6 Slide 32. Q7 Slide 33. Q8 Slide 34. Q9 Slide 36. Q10 It is more likely for the Gov’t to persuade the Fed to increase Money Supply (in order to increase GDP) rather than to persuade the Fed to decrease Money Supply (in order to fight inflation). Remember, a contractionary monetary policy will always bring a drop in real GDP despite the fact that it can fight inflation....
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- Spring '10