Question

7. Problems and Applications Q7 Suppose the Federal Reserve announced that it would pursue contractionary monetary policy to reduce the inflation rate. True or False: If wage contracts have short duration, it would make the recession induced by contractionary monetary policy more severe. True False True or False: If there is little confidence in the Fed's determination to reduce inflation, it would make the recession induced by contractionary monetary policy more severe. True False True or False: If expectations of inflation adjust quickly to actual inflation, it would make the recession induced by contractionary monetary policy more severe.

Answer 1

Answer:

1 False

2 True

3 False

Explanation:

1. shortage wage agreement not create gap in agent' rational behavior change against monetary policy. Long-term contracts tend to be ineffective and ineffective in response to economic policy change that produces serious destructive effect.
2. If there is less confidence in the Fed, then people don't expect prices to fall, and so with fewer M / P (purchasing power) agents, the recession is severe.
3. If inflation adjustments adjust quickly to real inflation, it will be easier for the Fed to target the economy faster and this will exacerbate the effects of monetary expansion, which will help keep the economy out of recession.