Q.9 Unemployment and monetary policy (6 points) A country is at the full-employment (i.e.. zero cyclical...

  

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Q.9 Unemployment and monetary policy (6 points) A country is at the full-employment (i.e.. zero cyclical unemployment) level. Suppose the central bank tries to reduce unemployment below the natural rate of unemployment by a one-shot increase in money supply (i.e.. the increase in money supply occurs once only). Assume that such policy change would not affect the public's inflation expectations. (i) (3 points) Explain whether the above policy can reduce the unemployment rate in the short run. (ii) (3 points) Explain whether the above policy can reduce the unemployment rate in the long run. Q.9 Unemployment and monetary policy (6 points) A country is at the full-employment (i.e.. zero cyclical unemployment) level. Suppose the central bank tries to reduce unemployment below the natural rate of unemployment by a one-shot increase in money supply (i.e.. the increase in money supply occurs once only). Assume that such policy change would not affect the public's inflation expectations. (i) (3 points) Explain whether the above policy can reduce the unemployment rate in the short run. (ii) (3 points) Explain whether the above policy can reduce the unemployment rate in the long run.

Answer rating: 100% (QA)

i In the short run the policy can potentially reduce the unemployment rate below the natural rate ... View the full answer