The recent COVID-19 pandemic has underscored the importance of the interaction between monetary and fiscal authorities’ responses during stress periods. With clear examples and justification, evaluate which policy was more effective at minimizing the COVID-19 shock in the corporate sector
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The recent COVID-19 pandemic has underscored the importance of the interaction between monetary
and fiscal authorities’ responses during stress periods. With clear examples and justification, evaluate which
policy was more effective at minimizing the COVID-19 shock in the corporate sector
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- The recent COVID-19 pandemic has underscored the importance of the interaction between monetaryn and fiscal authorities' responses during stress periods. With clear examples and justification, evaluate which policy was more effective at minimizing the COVID-19 shock in the corporate sectorPrices and aggregate-supply shocks can be added to Poole’s analysis by using the following model: Assume that the central bank’s objective is to minimize and that disturbances are mean-zero, white noise processes. Both the private sector in setting Et-1 πt and the monetary authority in setting its policy instrument must act prior to observing the current values of the disturbances. a. Calculate the expected loss function if it is used as the policy instrument. (Hint: Given the objective function, the instrument will always be set to ensure that expected inflation is equal to zero.) b. Calculate the expected loss function if mt is used as the policy instrument. c. How does the instrument choice comparison depend on i. the relative variances of the aggregate-supply, demand, and money-demand disturbances? ii. the weight on stabilizing output fluctuations l?What specific tools did the Germany government use to conduct the monetary policy during the time of Global Financial crisis? What was the stance the Germnay government adopted? Based on data/statistics/evidence/references, was the government successful in containing the crisis? Why or why not? Provide clear explanations. You may use the money market to complement your AD/AS analysis to demonstrate the impacts of the applied monetary policy.
- Do the fiscal and monetary policies undertaken at the beginning of the pandemic outbreak to deal with the effects of COVID-19 on the economy lend support to modern monetary theory? Why or why not?Suppose three economies are hit with the same temporary negative supply shock. In country A, inflationinitially rises and output falls; then inflation risesmore and output increases. In country B, inflationinitially rises and output falls; then both inflation andoutput fall. In country C, inflation initially rises andoutput falls; then inflation falls and output eventually increases. What type of stabilization approach dideach country take?Assume that as a result of the coronavirus and U.S. (Federal) Government policies to ameliorate or lessen the virus’ public health impact, the U.S. unemployment increases from 3.6% to 13.7% by May, 2020. As part of monetary and fiscal policies, however, beginning in the summer of 2020 the Fed purchases over $3.5 Trillion in U.S. government bonds and Federal Government transfers $5,000 to every U.S. adult over 18 years old (not in college…. sorry) financed by government debt. Then, as a part of its overall public health policies, the U.S. government begins to relax or loosen its previous travel and “shutter in” policies in the Spring 2021 so that people can now go to restaurants, movies or sporting events and the like more freely. Absent increases in the United States long run aggregate supply, the combined economic effects of such policies would most likely be:
- Assume that as a result of the coronavirus and U.S. (Federal) Government policies to ameliorate or lessen the virus’ public health impact, the U.S. unemployment increases from 3.6% to 13.7% by May, 2020. As part of monetary and fiscal policies, however, beginning in the summer of 2020 the Fed purchases over $3.5 Trillion in U.S. government bonds and Federal Government transfers $5,000 to every U.S. adult over 18 years old (not in college…. sorry) financed by government debt. Then, as a part of its overall public health policies, the U.S. government begins to relax or loosen its previous travel and “shutter in” policies in the Spring 2021 so that people can now go to restaurants, movies or sporting events and the like more freely. Absent increases in the United States long run aggregate supply, the combined economic effects of such policies would most likely be: A. Lower GDP growth. B. Higher rates of inflation. C. Higher unemployment rates…According to the table below, this is what is occurring in a specific country. AD (in Index billions) $975 $900 $825 $750 $675 $600 $525 $450 $375 SRAS (in billions) $375 $450 $525 $600 $675 $750 $825 $900 $975 Explain what policy lags are and exhibit how it varies for fiscal and monetary authority. LRAS (in billions) $900 $900 $900 $900 $900 $900 $900 $900 $900 Price 60 70 80 90 100 110 120 130 140oronavirus crisis is an unprecedented shock for the European economy: its effect on economic activity is clearly negative, and the doubts revolve around the magnitude and duration of the impact. In contrast, its effect on inflation raises more questions. There are downward pressures, such as the collapse in consumption due to the lockdown and the fall in the price of oil, but also upward pressures, such as the closure of factories and the general reduction in production. In addition, we must distinguish between the short-term effectsThe rise in inflation in unprocessed food (particularly fruit and vegetables) has been abnormally high, indicating a decline in production and a bottleneck as demand remains more stable, since the lockdown did not alter consumers’ basic needs. Prices may also have been affected by a possible increase in demand as consumers stockpiled. The drop in energy prices, meanwhile, reflects a collapse in demand for energy sources as a result of the shutdown of…
- Your clients are generally concerned with the growing inflation risk globally and the potential that many countries will need to begin tightening interest rates to curb inflation pressures. Evaluate the determinants of inflation post the initial Covid-19 shock environmentAll of the major orthodox approaches to macroeconomics presume that money is neutral at least in thelong run, although it might not be neutral in the short run. On the other hand, most heterodoxapproaches argue that money cannot be neutral. Compare and contrast these approaches to monetaryneutrality. Be sure to include a discussion of the positions taken by the following schools of thought:New Classical, Real Business Cycle, New Keynesian, Post Keynesian, and Institutionalist.“The COVID-19 pandemic brought to an end an extended period of stable (but only moderate) growth, low inflation, and low financial market volatility…The exceptional measures taken to contain COVID-19 are having a major effect on economic activity and the global financial system. The high level of uncertainty surrounding the size and duration of the economic downturn is accentuated by the uncertainty around the effectiveness of the various measures in containing the spread of the virus.”Financial Stability Review April 2020, RBA Critically Evaluate the effectiveness of the responses of central banks and the effectiveness of monetary policy during this crisis. Apply economic models in your explanation where applicable.
