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Chapter 10: Q.21 (page 230)

Take a look at the panel (b) of Figure 10-6. If the Federal Reserve seeks to prevent secular deflation from taking place as a consequence of economic growth, how should it change the quantity of money in circulation? How would this policy action prevent secular deflation?

Short Answer

Expert verified

An expansionary financial strategy of the Federal Reserve can forestall the common collapse resulting in the monetary development in the country.

Step by step solution

01

introduction

Any adjustment of the condition of creative innovation and the amount/nature of component inputs causes the LRAS bend to move to one side.

02

explanation

This infers that expanded ability or efficiency permits the economy to deliver labour and products at a more elevated level. As the AD stays unaltered, in the event that the cost level doesn't fall, there will be an overabundance of an unsold load of labour and products in the economy over the long haul. This is shown by EA in the diagram beneath.

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Most popular questions from this chapter

Has China's production possibilities curve been shifting outward or inward were the past 40years? Explain your answer

Suppose that there is a sudden rise in the price level. What will happen to economywide planned spending on purchases of goods and services? Why?

Evaluate likely reasons for persistent inflation in recent decades

This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for botb occurrences?

a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services.

b. There was a technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year.

c. Labor productivity increased throughout the year, and consumers significantly increased their total planned purchases of goods and services.

d. The capital stock increased somewhat during the year, and the quantity of money in circular. tion declined considerably.

Continuing from Problem 10-2,suppose that the full-employment level of nominal GDP in the following year rises to 21.85trillion. The long-run equilibrium price level, however, remains unchanged. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right in the following year? By how much, if any, has the aggregate demand curve shifted to the right? (Hint: The equilibrium price level can stay the same only if LRAS and AD shift rightward by the same amount.)
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