After examining Figure 22.6, explain the potential link between innovations in financial markets and output volatility since the 1980s. You should consider both the “Great Moderation” and the recession of 2007-2009 in your answer.
Answer to relevant Questions*According to real business cycle theory, can monetary policy affect equilibrium output in either the short run or the long run? How would a shock that reduces production costs in the economy (a positive supply shock) affect equilibrium output and inflation in the both short run and the long run? Illustrate your answer using the aggregate ...Explain why fiscal policy played a greater role than usual in the response to the 2007-2009 recession. Explain in detail how monetary policy influences banks’ lending behavior. Show how an open market purchase affects the banking system’s balance sheet, and discuss the impact on the supply of bank loans. Suppose there is an unexpected slowdown in the rate of productivity growth in the economy so that forecasters consistently overestimate the growth rate of GDP. If the central bank bases its policy decisions on the consensus ...
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