Business, 10.05.2021 16:00 zoeatlowapple
During the late 70s and early 80s, the U. S. economy faced an inflationary period. The chairman of the Fed at that time, Paul Vocker, pursued a monetary policy to reduce inflation in the long run. The principal method used by the Federal Reserve to change the money supply is through open market operations.
Required:
a. Which policy would accomplish the Fed's goal to reduce inflation (buy or sell bonds) in the long run?
b. Use the Quantity Theory and Fisher Equation to explain what happens to the economy in the long run, particularly to: (i) prices and nominal output; (ii) real in GDP; (iii) inflation and nominal interest rate; (iv) money demand; (v) real interest rate
c. Discuss the advantages and disadvantages of this policy regarding the trade-off between unemployment, output and inflation in the long run.
Answers: 1
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During the late 70s and early 80s, the U. S. economy faced an inflationary period. The chairman of t...
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