Consider the following dynamic AD/AS model: IS curve MPR curve AS curve A change

Question

Consider the following dynamic AD/AS model: IS curve MPR curve AS curve A change in which of the following causes a movement along the AD curve? A. a C. T Consider the model from Question 1 above. If b is close to zero, then A. the IS curve is close to vertical B. the IS curve is close to horizontal. C.monetary policy is very effective in influencing output. D. monetary policy is largely ineffective in influencing output. E. Both A and D F. Both B and C. Consider the model from Question 1 above. The steady-state (long-run) equilibrium is D. E. All of the above. None of the above. Consider the model from Question 1 above. If the Federal Reserve increases the federal funds rate by 1.75 percentage points for every one-percentage point increase in inflation, then the value of m is: A. 0.75 1.75 C.0.75 D. 0.25

Explanation / Answer

Change in t causes a movement along the A.D curve. Other factors causes a shift in A.D curve. Therefore option (D) is correct.

If b is close to zero,then IS is close to vertical . Because we can see from the IS equation that when b is close to zero, then Y is close to a. This implies IS curve is close to vertical.And monetary policy is very effective in influencing output. Because there when there is contractionary or expansionary monetary policy : then there will be only shift in vertical IS and therefore, the full impact will be shown on output (Y).Hence, option (F) i.e B and C is correct.

The steady -state long-run equilibrium is characterized by t = t-1 . Therefore ,option (B) is correct.

If the federal reserve increases federal funds rate by 1.75 percentage points for every one percentage point increase in inflation,then the value of m is 1.75. Therefore,option (B) is correct.

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