ECON 102 Lecture Notes - Lecture 31: Real Interest Rate, Best Response, Aggregate Demand

8 views2 pages

brownherring985

9 Dec 2020

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

How does the aggregate demand curve shift: change in consumer confidence, government spending or taxation, business confidence, etc, change in reserve bank"s policy reaction function. This reaction function shows the real interest rate that the rba will set for any given rate of inflation. This relationship can itself change, such that at any given rate of inflation, the reserve bank chooses to set a higher or lower real interest rate. Situation: in a situation of recession, rba looser policy reaction function (shift down). Hence bank sets a lower real rate of interest. Then the ad curve will shift to the right: if rate of inflation too high, rba tighter monetary policy so it will set a higher real interest rate (move up). Supply- relationship between rate of inflation and the quantity of output that, in the aggregate, firms will wish to sell. Inflation inertia (reasons: the actual rate of inflation is influenced by the expected rate of inflation.

Related Questions

How does the policy rate hitting a floor of zero lead to an upward sloping aggregate demand curve?

A.When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward-sloping AD

B.When the policy rate hits a floor of the zero, the negative relationship between planned spending and the real interest rate embodied by the IS curve becomes positive, and this reversal results in lower inflation producing a lower real interest rate, and hence lower planned spending, i.e., an upward-sloping AD curve.

C.When the policy rate hits a floor of the zero, the negative relationship between inflation and the real interest rate embodied by the MPcurve becomes positive, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward-sloping AD curve.

D.When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in higher inflation producing a higher real interest rate and hence a lower planned spending i.e. an upward-sloping AD curve.

raspberrymule870

1. Which of the following is likely to happen if the Fed buys Treasury securities from banks?

interest rate rises; investment falls

interest rate rises; investment rises

interest rate falls; investment rises

interest rate falls; investment falls

2. The main goal of monetary policy is to shift

3. Which of the following is true regarding the effects of an expansionary monetary policy?

Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run.

Printing more money will affect real GDP both in the short and long run because inflation is a natural occurrence of expansionary monetary policy.

Printing more money will not lower the value of money in the short run because prices are fully flexible in the short run.

Printing more money will ultimately raise the value of money in the long run because prices are fully flexible in the long run.

4. In which of the following cases are you likely to be adversely affected by unexpected inflation?

You, the owner of a local restaurant, charge the price of lamb lasagna as per the daily market rate of lamb.

You purchase Mountain Dew every day from the dormitory vending machine, which keeps its prices fixed for the entire school year.

You, the owner of an airline company, sign a two-year contract for airline fuel.

You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%.

5. The Phillips curve depicts the relation between

real GDP and price level.

price level and inflation rate.

unemployment rate and inflation rate.

unemployment rate and real GDP.

6. Which of the following statements is true regarding the shapes of short-run and long-run Phillips curves?

The short-run Phillips curve is vertical and the long-run Phillips curve is downward sloping.

The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical.

Both the short-run and long-run Phillips curves are downward sloping.

Both the short-run and long-run Phillips curves are vertical.

7. Suppose the table below lists the actual annual inflation rates for 2010 to 2015. What would be the most likely predictions people make about the inflation rate for 2016 based on adaptive and rational expectations theories, respectively?

Year	Actual Inflation rate
2010	0%
2011	0%
2012	3%
2013	3%
2014	6%
2015	6%

8. Which of the following can change relatively quickly in the short-run?

the price of a latte in a coffee shop

the salary of a finance professor

the rent paid for a store

copperherring529

Question 2

For any given expected inflation rate, short-run aggregate supply curves show the relationship between

the money supply and growth rate of output.

inflation and growth rate of output.

production factors and wages.

inflation and wages.

1 points

Question 3

Why is the SRAS curve steeper above its intersection with the Solow growth curve?

		Wages are stickier in the upward direction.
		Wages are less sticky in the upward direction.
		Lower inflation will lead to faster growth.
		Employees become less motivated to work during times of unexpected inflation.

1 points

Question 4

What factors triggered the Great Depression?

		decreased consumer spending and tight monetary policy
		decreased investment and increased inflation
		decreased employment and increased money supply
		decreased inflation and increased income taxes

1 points

Question 5

How might changes in the money supply be non-neutral in the short run?

		As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels.
		When money supply changes in the short run, it will affect nominal, but not real, variables in the short run.
		As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate.
		If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

1 points

Question 6

For a given nominal interest rate, an increase in deflation will cause the real rate of interest to

remain relatively constant.

increase.

decrease.

become unpredictable.

Question 8

Which of the three price indexes measures the average price level of the largest total number of goods?

		the consumer price index
		the GDP deflator
		the producer price index
		Each price index accomplishes the same task.

The textbook uses the

ECON 102 Lecture Notes - Lecture 31: Real Interest Rate, Best Response, Aggregate Demand

Document Summary

Get access

Related Documents

ECON 102 Lecture Notes - Lecture 19: Aggregate Supply, Aggregate Demand, United States Dollar

ECON 102 Lecture Notes - Lecture 30: Real Interest Rate, Money Supply, Nominal Interest Rate

ECON 102 Lecture Notes - Lecture 22: Phillips Curve, Aggregate Demand, Aggregate Supply

Related Questions

		the money supply and growth rate of output.
		inflation and growth rate of output.
		production factors and wages.
		inflation and wages.