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Elaborate on the impact of a central bank's reduction in interest rates using the AD-AS model.
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- What role, if any, does monetary policy play in the Real Business Cycle Model?What happens in the AD-AS model when the Federal Reserve buys government securities?How does the decision to reduce the policy rate impact the economy. Explain using the ISLM model focusing on impacts on the goods and services market and the financial market.
- Using the AD-AS model, draw a graph and explain the effect of the implementation of a restrictive monetary policy on the equilibrium price level and the equilibrium level of output.If the central bank desired to increase spending in the economy, using the instruments ofmonetary policy, explain how the central bank can indirectly achieve this?If a central bank wants to end the defation and stimulate the economy,as in the case of Japan in the late 1990s, what can it do?
- Using the dynamic AD-AS analysis, show the effect of contractionary monetary policy.Use an ISLM model to analyze the effects of a money supply increase on the interest rate and GDPAssume you are a member of the Federal Reserve, and you are adhering to the dual mandate. The economy reflects the following: 2018 CPI: 115 2019 CPI: 121.9 Potential GDP: $20 trillion 2019 Real GDP: $21 trillion Natural rate of unemployment: 4.00% 2019 unemployment rate: 3.50% Sketch a graph of the AD-AS Model. Be Sure to label all parts of the graph. Notate what type of gap you have and be sure to reflect it in your graph. What monetary policy tools can be used to fix the gap identified in part A? Assume you have adopted the Taylor Rule. Calculate the targeted federal funds rate if the equilibrium real federal funds rate and target rate of inflation is both 2%. Graphical demonstrate the effects your recommended change of the Federal Funds Rate has on the reserves market, the money market, and the loanable funds market. Note that you should have three separate graphs, one for each market, but you do not have to worry about finding the quantity of reserves, money, or…
- The mandate of the South African Reserve Bank (SARB) states that “the Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa”. There are several macroeconomic determinants that in many ways affect the outlook of the economy, such as inflation, growth, interest rates, unemployment and exchange rates. There has been an ongoing conversation among economists and politicians about the mandate of the SARB. Do you think that the mandate of the SARB should change? Support your view.In detail explain the role of the Government and the Central Bank to address the economic recessionproblem by using appropriate fiscal and monetary policies.Using the macroeconomic environment where banks sources its inputs and to which it sells its outputs. Relate this to both the domestic market and the foreign sector.