Economics Answers

3. There is debate concerning both monetary and fiscal policy. You’ll examine each separately, then together.
d. The Phillips curve shows an important trade-off faced by economic policymakers. This trade-off was used to point out the legitimacy of government intervention in the economy for many years.
(iii) What is the currently accepted belief about the Phillips curve? Hint: This question has to do with the long run versus the short run.

3. There is debate concerning both monetary and fiscal policy. You’ll examine each separately, then together.
d. The Phillips curve shows an important trade-off faced by economic policymakers. This trade-off was used to point out the legitimacy of government intervention in the economy for many years.
(ii) The trade-off demonstrated by the Phillips curve seemed to fail during the 1970s. Why? What happened?

3. There is debate concerning both monetary and fiscal policy. You’ll examine each separately, then together.
d. The Phillips curve shows an important trade-off faced by economic policymakers. This trade-off was used to point out the legitimacy of government intervention in the economy for many years.
(i) What is the Phillips curve? What does it show? Why is it important to economic policymakers?

3. There is debate concerning both monetary and fiscal policy. You’ll examine each separately, then together.
c. Some people will argue against using either monetary or fiscal policy, instead supporting a laissez-faire approach to the economy. The well-known economist Milton Friedman, for example, believed in the permanent income hypothesis and was also a monetarist. What monetary policy prescription do monetarists support?

3. There is debate concerning both monetary and fiscal policy. You’ll examine each separately, then together.

b. The main argument against monetary policy is that it affects only nominal variables, not real variables. Explain this argument using the two methods below.
(i) Explain and show on a graph the short-run and long-run equilibrium changes in the AD/AS model from expansionary monetary policy. How does this support an anti-monetary policy stance?
Answer:

(ii) Explain the equation of exchange. What do quantity theorists believe, and why don't they support monetary policy?

3. There is debate concerning both monetary and fiscal policy. You’ll examine each separately, then together.
a. Below are two arguments against using fiscal policy. Explain each one.
(i) Permanent Income Hypothesis.
Answer:

(ii) Effects of a dollar of government spending versus a dollar of private spending.

Answer:

2. The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of the key roles is conducting monetary policy.
c. Using the monetary policy tool the Fed employs most often, the Fed closes an inflationary gap. Describe the steps the economy goes through to move to the new equilibrium output and price level. Use graphs with your answer and be sure to label everything completely.

2. The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of the key roles is conducting monetary policy.
b. Suppose the Fed wants to close an inflationary gap. How could it use each of the three tools of monetary policy to close the gap?

2. The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of the key roles is conducting monetary policy.
a. What is monetary policy?

Wildcat Ltd, a manufacturing company sold a machinery for Rs 8 lacs at the year end. The company had purchased the machinery four years back for Rs 15 lacs and had depreciated the same using written down value method of depreciation @ 20%. As an accounts executive of Wildcat Ltd, calculate the WDV of the asset for the four years, accumulated depreciation for four years and profit/loss on sale, if any.