View the step-by-step solution to:

Question

Inflation in the Philippines was 6.7% in September, far above the central bank's target of 2-4%. Suppose

the central bank decides to raise interest rates.

(a) Using the money market, describe the type of monetary policy (increase or decrease in the money supply) that would achieve higher interest rates


(b) The central bank's goal is to reduce inflation. Using the IS-LM-FE model, explain whether the policy of higher interest rates is appropriate or not.


(c) Use the AD-AS model to predict the short-run and long-run effects of the central bank's policy on Philippine inflation, output, and unemployment. Does it matter whether wages are flexible or not? Explain.


d) Suppose the demographic transition of the Philippines causes labor supply to grow more

rapidly than usual How does this affect your answer about unemployment and wages in (c)? Use the

labor market.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes