Question

1) "Higher interest rates lower equilibrium real GDP and thus slow the rate of economic growth."...

1) "Higher interest rates lower equilibrium real GDP and thus slow the rate of economic growth." Critique (and explain the underlying basis for) this quote noting whether it is true all of the time or only some of the time.

2)Typically, the Fed targets the fed funds rate. Assume that the Fed is operating the usual way, targeting a specific fed funds value (such as its present target), when the rate of economic growth begins to slow. Outline: (i) the actions the Fed would have to take to sustain its current interest rate target; (ii) the likely impact those actions will have on the rate of economic growth; and (iii) how the yield curve can be expected to change as a result of this event.

Homework Answers

Answer #1

1).

Here we have given that higher interest rate decreases real GDP implied the slower the economic growth, this statement is only TRUE in the SR, because in the SR the AS is upward sloping, => if AD changes because of the change in interest rate causes real GDP changes implied the change in economic growth.

In the LR the real GDP is fixed at its potential level or at the full employment level, => any change in AD will not affect the real GDP, => in the LR the change in interest rate doesn’t have any effect on real GDP.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Suppose that the annual rates of growth of real GDP of Econoland over a five-year...
1. Suppose that the annual rates of growth of real GDP of Econoland over a five-year period were sequentially as follows: 3 percent, 1 percent, -2 percent, 4 percent, and 5 percent. What was the average of these growth rates in Econoland over these 5 years? What term would economists use to describe what happened in year 3? If the growth rate in year 3 had been a positive 2 percent rather than a negative 2 percent, what would have...
The main advantage of using the interest rate, rather than the money supply, as the policy...
The main advantage of using the interest rate, rather than the money supply, as the policy instrument in the dynamic AD–AS model is that it is more realistic. Today, most central banks, including the Federal Reserve, set a short-term target for the nominal interest rate. Keep in mind, though, that hitting that target requires adjustments in the money supply. For this model, we do not need to specify the equilibrium condition for the money market, but we should remember that...
The main advantage of using the interest rate, rather than the money supply, as the policy...
The main advantage of using the interest rate, rather than the money supply, as the policy instrument in the dynamic AD–AS model is that it is more realistic. Today, most central banks, including the Federal Reserve, set a short-term target for the nominal interest rate. Keep in mind, though, that hitting that target requires adjustments in the money supply. For this model, we do not need to specify the equilibrium condition for the money market, but we should remember that...
6. A persistent increase in the actual growth rate of real GDP in excess of the...
6. A persistent increase in the actual growth rate of real GDP in excess of the growth rate of potential real GDP likely will most result eventually in: (a) accelerating inflation; (b) a recession; (c) stagflation (rising inflation and falling real economic growth); (d) a looser monetary policy from the Federal Reserve. 7. For the most part, rising U.S. inflation is associated with: (a) a much stronger U.S. dollar in foreign exchange markets; (b) growth in aggregate demand at a...
1. The Federal Reserve Act says that the Fed must try to achieve​ ______. A. a...
1. The Federal Reserve Act says that the Fed must try to achieve​ ______. A. a balanced budget B. maximum​ employment, stable​ prices, and moderate​ long-term interest rates C. a stable U.S. dollar on foreign exchange markets and moderate​ long-term and​ short-term interest rates D. an economic environment in which investment in U.S. stock and money markets is encouraged The Federal Reserve Act says that the Fed must use​ ______ to achieve its objectives. A. bank reserves B. commercial banks...
2. This question refers to the article: Fed raises interest rates, signals 2 more hikes in...
2. This question refers to the article: Fed raises interest rates, signals 2 more hikes in 2018 Akin Oyedele Mar. 21, 2018, 2:00 PM 16,032     The Federal Reserve announced Wednesday that it raised its benchmark interest rate by 25 basis points, to a range of 1.50% to 1.75%.     Over the next few weeks, this increase will affect credit cards, adjustable-rate mortgages, car loans, and other credit lines that don't have fixed rates.     The Fed still expects to...
1. ​(Please refer to the attached exhibits and sample article​ ). Which paragraph would be best...
1. ​(Please refer to the attached exhibits and sample article​ ). Which paragraph would be best for a target audience of people familiar with economics in general and the workings of the Fed in​ particular? 2. (Please refer to the attached exhibits and sample article​ ). Which paragraph would be best for a target audience of people unfamiliar with​ economics? 3. ​(Please refer to the attached exhibits and sample article​ ). Which exhibits are the most ​accurate? 4. If the...
53. Which of the following is the Fed’s most important policy interest rate? (a) federal funds...
53. Which of the following is the Fed’s most important policy interest rate? (a) federal funds rate; (b) the rate on 2-year Treasury notes; (c) the rate on 10-year Treasury notes; (d) the rate on 30-year fixed-rate mortgages. 54. In which market would a bank with excess reserves attempt to sell reserves to a bank with insufficient reserves? (a) Treasury bill market? (b) federal funds market; (c) bond market; (d) NASDAQ. 55. When compared with monetarist theory, Keynesian theory places...
51. Which statement about the Federal Open Market Committee is untrue? (a) the Secretary of Treasury...
51. Which statement about the Federal Open Market Committee is untrue? (a) the Secretary of Treasury always is a voting member of the Committee on monetary policy decisions; (b) the President of the New York Fed, by tradition, always is a voting member on policy matters; (c) the Committee formulates, but does not implement, monetary policy; (d) its policy decisions do not require a consensus among voting members. 52. An open market operation designed to add reserves to the banking...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From the April 2004 Issue Save Share 8.95 In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. By 2002, that figure had grown to $9.5 billion. What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? Was it positioned in a high-growth industry? Hardly. Auto insurance is a mature, 100-year-old industry...