HomeworkLib
Question

9. Making use of Okuns law, it may be computed that if the Bank of Canada reduces the money supply 5 percent and the quantit

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

According to the quantity theory of money, percentage change in nominal GDP is equal to percentage change in money supply if velocity is constant. This indicates that the percentage increase in the nominal GDP will be 5%. Okun law indicates that for every 2% decline in nominal GDP beyond its full employment level, unemployment rises by 1%. When GDP declines by 5%, unemployment rate when increased by 5/2 = 2.5%. however this will be only a short run phenomenon as wage price flexibility in the long run bring back the equilibrium at the long-run level.

Select the last option

0 0
Add a comment
Know the answer?
Add Answer to:
9. Making use of Okun's law, it may be computed that if the Bank of Canada...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 8) Consider an economy in long-run equilibrium with an inflation rate () of 0.08 per year and a natural unemployment rate of 0.05. Suppose Okun's law holds and a one percentage point unemplo...

    8) Consider an economy in long-run equilibrium with an inflation rate () of 0.08 per year and a natural unemployment rate of 0.05. Suppose Okun's law holds and a one percentage point unemployment rate reduces real output by 2% of full-employment output. The expectation-augmented Phillips curve is givep by increase in the т . ne . 2.5 (u-005). Consider a two distr maErTTelintyear,π .006 and me . 008. In the second year, π.004 and㎡. (a) In the first year, what...

  • 2. Phillips Curve. An economy has the following functions for its short run aggregate supply (SRAS),...

    2. Phillips Curve. An economy has the following functions for its short run aggregate supply (SRAS), Okun's Law (OL), and Phillips Curve (PC): SRAS: P = EP + (1/2)(y - 3) OL: (Y-Y) = -4(u-u") PC:T = ET - (1/5)( - 6) The economy begins at its natural rate of output with a stable price level equal to $5. a.) Output is at its natural level when the price level is equal to expectations. Calculate the natural rate of output...

  • The following graph shows the economy in long-run equilibrium atthe expected price level of 120...

    The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less.Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump.In the short run, the decrease in consumption spending associated with the housing...

  • Suppose the governor of the Bank of Canada accepts the theory of the short-run Phillips curve...

    Suppose the governor of the Bank of Canada accepts the theory of the short-run Phillips curve and the natural-rate hypothesis and wants to keep unemployment close to its natural rate. Unfortunately, because the natural rate of unemployment can change over time, the governor is unsure about the value of the natural rate. Which of the following macroeconomic variables do you think the governor should look at when conducting monetary policy? Check all that apply. Components of GDP Interest rates Oil...

  • This Question: 1 pt 10 of 10 (9 complete) The Bank of Canada and the government...

    This Question: 1 pt 10 of 10 (9 complete) The Bank of Canada and the government of Canada have agreed that the Bank will achieve an inflation rate target. Which arrangement, inflation targeting or unemployment targeting, would most likely provide price stability? targeting would most likely provide price stability because it would anchor the short-run tradeoff at the rate. O A. Unemployment; natural unemployment B. Inflation; natural unemployment C. Inflation ; expected inflation OD. Unemployment; expected inflation

  • Assignment Score: Give Up 100/400 Resources Hint Check Answer Question 2 of 4 Suppose the Fed reduces the money su...

    Assignment Score: Give Up 100/400 Resources Hint Check Answer Question 2 of 4 Suppose the Fed reduces the money supply by 5 percent. Assume the velocity of money (V) is constant a. What happens to the aggregate demand (AD) curve? The AD curve shifts b. What happens to output and the price level in the short run and long run? Give precise numerical answers. In the short run, the price level decreases by percent. c. In the short run, output...

  • The Friedman natural rate theory states that a. in both the short run and the long...

    The Friedman natural rate theory states that a. in both the short run and the long run the economy stays at its natural rate of unemployment. b. the economy will not return to its natural rate of unemployment in either the short run or the long run. c. the economy stays at its natural rate of unemployment in the short run, but not in the long run. d. in the long run the economy returns to its natural rate of...

  • Which of the following factors will influence the position of the long-run aggregate supply curve? Check all that apply

    5. The slope and position of the long-run aggregate supply curve Which of the following factors will influence the position of the long-run aggregate supply curve? Check all that apply The price level The quantity of physical capital The amount of available natural resources The size of the labor force Suppose the economy produces real GDP of $30 bwwion when unemployment is at its natural rate. On the following graph, use the purple line (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve.  Suppose the...

  • To decrease the money supply, the Bank of Canada could O a) lower the bank rate....

    To decrease the money supply, the Bank of Canada could O a) lower the bank rate. O b) lower the required reserve ratio. O c) sell government securities. d) purchase government securities. An increase in interest rate in the economy will have what effect on macroeconomic equilibrium in the long run? a) The price level will rise, and the level of output will fall. b) The price level will rise, and the level of output will be equal to the...

  • The following graphs show the state of an economy that is currently in long-run equilibrium.

    3. 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 The natural level of output is $3 trillion. The unemployment rate is currently 6% higher than the natural rate of unemployment. The...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT