*Suppose a natural disaster reduces the productive capacity of the economy. How would the equilibrium long-run real interest rate be affected? Assuming the central bank maintains its existing inflation target, illustrate the impact on the monetary policy reaction function and on equilibrium inflation and output both in the short run and the long run.
Answer to relevant Questions*Monetary policymakers observe an increase in output in the economy and believe it is a result of an increase in potential output. If they were correct, what would the appropriate policy response be to maintain the existing ...Explain why monetary policy makers cannot restore the original long-run equilibrium of the economy if, in the short run, the economy has moved to a point where inflation is above target inflation and output is below ...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. For each of the following, explain whether the response is theoretically consistent with a tightening of monetary policy and identify which traditional channel of monetary policy is at work: a. Firms become more likely to ...In the wake of the financial crisis of 2007-2009, would you anticipate the bank lending channel becoming more or less important in the U.S. in the near future? Explain your answer.
Post your question