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The long-run effects of monetary policy
The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC).
Which of the following statements are true based on these graphs? Check all that apply.
A) The unemployment rate is currently 9% higher than the natural rate of unemployment.
B) The current quantity of output is greater than potential output.
C) The natural level of output is $6 trillion.
Suppose the central bank of the economy decreases the money supply.
Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves.
The long-run effect of the central bank's policy is (Increase / No Change / Decrease) in the inflation rate, (Decrease / No Change / Increase) in the unemployment rate, and (Decrease / Increase / No Change) in real GDP.

Sagot :

DevanshChhidn

A) The unemployment rate is currently 9% higher than the natural rate of unemployment.

B) The current quantity of output is greater than potential output.

What are long run effects of monetary policy?

For the past eight years or so, interest rates have been consistently low in the core advanced economies. Since early 2009, short-term nominal rates have generally been close to zero, and since 2014 and 2016, respectively, in the euro area and Japan, they have even been negative. Along with the decline in short-term nominal rates, real (inflation-adjusted) rates have fallen to persistently negative levels. Over this time, long-term rates have similarly fallen, but more gradually: nominally, they averaged between 3 and 4% in 2009 before falling to below 1% in 2016, and in real terms, they have been primarily negative since 2012.

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