Macroeconomics 1B

Macroeconomics 1B - increasing the price level 2.5 In the...

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Macroeconomics 1B, Fall 2009 Problem Set #4 Chapter 14 problems 1.6 when the federal reserve pegs interest rates it loses some control of the money supply. 4.5 The decision to purchase a refrigerator is likely to be more sensitive to interest rates than the decision to buy clothing because refrigerators are more expensive and likely to be financed. 4.6 Switzerland would be affected more by monetary policy because they depend on international trade more
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4.7 Chapter 15 2.4 B The Fed could increase the money supply which would increase the price level to fight unemployment in this situation. C Economists say that supply shocks create a dilemma for that shocks demand do not create because the Fed can only lower unemployment due to a supply shock by
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Unformatted text preview: increasing the price level. 2.5 In the long run since out put is above potential output wages and prices will rise which will cause the short run AS to shift leftward. Interest rates rise, investment falls and GDP will be equal to potential GDP in the long run. 3.5 C The ministry required a increase in sales taxes several years later because after the economy returns to full employment the lower income tax rate may become inflationary. D The finance ministry is trying to prevent inflation. 3.6 In the long run since output is above potential output wages and prices will rise which will cause short run AS to shift leftward. In the long run interest rates rise which crowds out investment....
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This note was uploaded on 02/02/2011 for the course ECN 1B taught by Professor Michalowski during the Spring '11 term at UC Davis.

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Macroeconomics 1B - increasing the price level 2.5 In the...

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