Answers to Morton Activities5

Answers to Morton Activities5 - AnswerstoMortonActivities...

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Answers to Morton Activities Activity 43: Monetary Policy Inflation Real GDP (output) 1. Buy Increase decrease Sell Decrease decrease 2. decrease discount rate Increase increase    Increase Decrease decrease 3. decrease reserve  requirement Increase increase Increase Decrease decrease Fiscal Policy 4. Increase G Increase Increase     Decrease G Decrease Decrease 5. Increase taxes Decrease Decrease    Decrease taxes Increase increase 6. The FED can change the MS on a daily basis through OMO. Thus, once the OMC decides on  a policy, the policy can be implemented immediately. However, monetary policy works through  changes in interest rates and the response of interest-sensitive components of AD to the interest  rate changes. The response of I and C takes time. 7. The outside lag is short for fiscal policy for several reasons    FP is debated in Congress and discussed extensively in the media    If the FP change is a tax change, the effects will be felt within year’s time If the FP is an expenditure change, the effect will be felt almost immediately as the affected  agency changes its spending patterns – BUT it must spend for any effect to happen. 8. The existence of policy lags implies that policy actions could be out of sequence with the  economy. For example, expansionary policy might have its impact after the economy has started  to recover from a recession. As a result the policy might create inflation because it over 
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This note was uploaded on 05/18/2011 for the course ECON 101 taught by Professor Mcdounough during the Spring '11 term at DeVry Westminster.

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