Consider a situation where central bank officials repeatedly express concern that output exceeds potential output, implying that the economy is overheating. Although they haven’t implemented any policy moves as yet, the data show that consumption of luxury goods has begun to slow. Explain how this behavior could reflect the asset-price channel of monetary policy at work.
Answer to relevant QuestionsIf time has value, why are financial institutions often willing to extend you a 30-year mortgage at a lower annual interest rate than they would charge for a one-year loan? Plot the level of real GDP (FRED code: GDPC1). Then plotthe rate of economic growth as the percent change from a year ago of this index. Describe how real GDP behaves in recessions, which are denoted in the FRED graph by ...Consider again the tropical island described in Problem 12. Under what circumstances would you recommend the issue of a paper currency by the government of the island? What advantages might this strategy have over the use ...Do you think the balance-sheet channel of monetary policy would be stronger or weaker if:a. Firms’ balance sheets in general are very healthy?b. Firms have a lot of existing variable-rate debt?Among the challenges facing central banks around the world is the elevated level of public debt. Plot U.S. federal debt held by the public as a percent of gross domestic product (FRED code: FYPUGDA188S) and discuss the ...
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