Suppose the policy interest rate controlled by the central bank and the inflation rate were both zero. Explain in terms of the aggregate demand-aggregate supply framework how the economy could fall into a deflationary spiral if it were hit by a negative aggregate demand shock.
Answer to relevant QuestionsList the financial transactions you have engaged in over the past week. Howmight each one have been carried out 50 years ago? During the financial crisis of 2007-2009, some financial instruments that received high ratings in terms of their safety turned out to be much riskier than those ratings indicated. Explain why markets for other financial ...You are the owner of a small sandwich shop. A buyer may offer one of several payment methods: cash, a check drawn on a bank, a credit card, or a debit card. Which of these is the least costly for you? Explain why the others ...Use the aggregate demand-aggregate supply framework to show how a boom in equity prices might affect inflation and output in the short run. Describe the long-run impact on inflation and output: (a) If the central bank ...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?
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