Scenario You are a member of the Council of Economic Advisers for the Central Bank in the country of Kumbara. Currently the economy of Kumbara is feeling the impacts of the crisis in the nation of Moolah, a major trade partner. Kumbara's GDP is currently at $370b and is estimates show that Kumbara's economy has the capacity to produce $400b. The president of Kumbara does not wants to change taxes or government spending. Prepare a brief report that answers the following questions: 1. Based on what you know about short run vs long equilibrium, explain how the economy can transition from its current equilibrium to the long run equilibrium. In other words, what would have to take place for this transition to occur? Explain your rationale with words. 2. The head of the central bank favors immediate action, and wants you put together a monetary policy response. Which monetary policy action would you recommend (expansionary or contractionary)? Explain your rationale with words. 3. Based on the policy action you are recommending, what would be the impact on the desire to save, the desire to spend, unemployment and inflation. Explain your rationale with words. 4. Thinking outside of your role as a member of the Council of Economic Advisers for the Central Bank, what is your take on expansionary monetary policy? Do you favor it? Are you against? In your view, what are the pros and cons? Explain your rationale.
Scenario You are a member of the Council of Economic Advisers for the Central Bank in the country of Kumbara. Currently the economy of Kumbara is feeling the impacts of the crisis in the nation of Moolah, a major trade partner. Kumbara's GDP is currently at $370b and is estimates show that Kumbara's economy has the capacity to produce $400b. The president of Kumbara does not wants to change taxes or government spending. Prepare a brief report that answers the following questions: 1. Based on what you know about short run vs long equilibrium, explain how the economy can transition from its current equilibrium to the long run equilibrium. In other words, what would have to take place for this transition to occur? Explain your rationale with words. 2. The head of the central bank favors immediate action, and wants you put together a monetary policy response. Which monetary policy action would you recommend (expansionary or contractionary)? Explain your rationale with words. 3. Based on the policy action you are recommending, what would be the impact on the desire to save, the desire to spend, unemployment and inflation. Explain your rationale with words. 4. Thinking outside of your role as a member of the Council of Economic Advisers for the Central Bank, what is your take on expansionary monetary policy? Do you favor it? Are you against? In your view, what are the pros and cons? Explain your rationale.
Chapter21: Financial Markets, Saving, And Investment
Section: Chapter Questions
Problem 9P
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Transcribed Image Text:Scenario
You are a member of the Council of Economic Advisers for the Central Bank in the country of Kumbara.
Currently the economy of Kumbara is feeling the impacts of the crisis in the nation of Moolah, a major
trade partner. Kumbara's GDP is currently at $370b and is estimates show that Kumbara's economy has the
capacity to produce $400b. The president of Kumbara does not wants to change taxes or government
spending. Prepare a brief report that answers the following questions:
1. Based on what you know about short run vs long equilibrium, explain how the economy can transition
from its current equilibrium to the long run equilibrium. In other words, what would have to take place
for this transition to occur? Explain your rationale with words.
2. The head of the central bank favors immediate action, and wants you put together a monetary policy
response. Which monetary policy action would you recommend (expansionary or contractionary)?
Explain your rationale with words.
3.
Based on the policy action you are recommending, what would be the impact on the desire to save, the
desire to spend, unemployment and inflation. Explain your rationale with words.
4. Thinking outside of your role as a member of the Council of Economic Advisers for the Central Bank, what
is your take on expansionary monetary policy? Do you favor it? Are you against? In your view, what are
the pros and cons? Explain your rationale.
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