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Chapter 16: Q.1 Critical Thinking Questions (page 365)

What do you suppose might be gained-and by whom-if the Fed were to follow an easily understood rule as a guide for conducting monetary policy? Explain.

Short Answer

Expert verified

if the Fed were to follow an easily understood rule as a guide for conducting monetary policy then it would-be no one's benefit assuming that the strategy becomes inadequate or on the other hand assuming the public authority's endeavour to diminish joblessness brings about additional expansion and an expansion in the business.

Step by step solution

01

introduction

Whenever a policy is to such an extent that individuals expect it by utilizing all suitable data, then, at that point, the arrangement becomes incapable.

02

explanation

On the off chance that the Fed were to observe an effectively perceived guideline, it will be simple for individuals to expect the Fed's approach activity. Both objective assumptions speculation and strategy unimportance recommendation let us that know if a policy becomes expected then it consequently becomes insufficient even in the short-run.

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Most popular questions from this chapter

Why do you suppose that corporate cash holdings have decreased slightly since 2015?

You learned in an earlier chapter that if a recessionary gap occurs in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust downward, causing the short-run aggregate supply curve to shift downward and to the right and pushing equilibrium real GDP per year back to its long-run value. In this chapter, you learned that the Federal Reserve can eliminate a recessionary gap in the short run by undertaking a policy action that increases aggregate demand.

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