Assume that each period's potential production increases by 4% as productivity rises. Each period, the money supply should be reduced by 4%.
<h3>How can monetary policy manage inflation?</h3>
One frequent strategy for managing inflation is to implement a contractionary monetary policy. By lowering bond prices and raising interest rates, a contractionary policy seeks to reduce the amount of money available in an economy. As a result, prices drop, inflation slows, and consumption declines.
<h3>Is the greatest approach to lower inflation through monetary policy?</h3>
Increasing interest rates in the economy and tightening monetary policy will help to lower inflation if it is too high, but they will also likely slow down economic development and increase unemployment.
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Answer:
a) $10 billion
b) <em>For example, the investment made by the business in this question would become income in the hands of other transacting economic agents which in turn be re-spent by them.</em>
Explanation:
<em>Expenditure Multiplier is the amount by which the real GDP will change if autonomous expenditure changes by a given amount. </em>
It is calculated as follows: 1/(1-MPC).
MPC is the portion of additional income that is spent. If the MPC is 0.8, then the expenditure multiplier will be = 1/(1-0.8) = 5
Using the information given, if business investment increase by $2 billion, the resulting change in GDP would be
increase in real GDP = 2 billion × 5 = $10 billion
Explanation of the multiplier change in real GDP
<em>Real GDP increases by more than 2 billion because of the multiplier effect. This effect is implies that expenditures by made by one economic agent in a transaction becomes income in the hand of another which in turn be re-spent . This will continue in manifolds thereby increasing the total value of goods and services resulting from a single increase in autonomous spending in multiple fold.</em>
<em>For example, the investment made by the business in this question would become income in the hands of other transacting economic agents.</em>
A or Middle Eastern is your answer.
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Answer:
The correct answer is letter "C": the interest rate the Fed charges commercial banks for borrowing funds.
Explanation:
The discount rate is the amount of interest the Federal Reserve (<em>Fed</em>) charges private banks for short-term loans. Banks will often borrow from each other for short-term needs with central banks like the Fed typically acting as a lender of last resort. As a result, it likes to keep its discount rates somewhere above what private banks are charging each other.