- +44 141 628 6080
- info@tutorsglobe.com

Explaino changes in the monetary policy effectiveness lag

Monetary policy effectiveness lag

You are given the following two IS curves that show how real GDP (Yt) in the current time period t depends on the current interest rate and interest rates in previous periods, where rt is the interest rate in time period t. Furthermore each time period corresponds to a quarter or three months.

1. Yt= 8800-25Rt-25Rt-t

- 25Rt-2 - 25Rt-3 - 20Rt-4 - 20Rt-5

- 20Rt-6 - 15Rt-7 - 15Rt-8 - 10Rt-9

2. Yt= 8400 - 5Rt - 5Rt-1

- 5Rt-2 - 5Rt-3 - 5Rt-4 - 10Rt-5

- 15Rt-6 - 15Rt-7 - 15Rt-8 - 20Rt-9

Suppose that the Fed can set interest rate and that for the last 10 quarters, the interest rate has been 4 percent.

(a) verify that initially real GDP equals 8000 for both IS curves.

(b) Suppose that the fed lowers the interest rate to 3 percent and keeps it there for the next 10 quarters.

(c) for each IS curve, what is the total increase in real GDP?

(d) for each IS curve, how many quarters does it take for the increase in real GDP to equal one-half of the total figure?

(e) given your answers in parts b-d, explain how the changes in the monetary policy effectiveness lag and the interest-rate multiplier affects how much and how long monetary policymakers must change interest rates in response to any given demand shock.

Expected delivery within 24 Hours

1948435

Questions

Asked

3,689

Active Tutors

1417671

Questions

Answered

**
Start Excelling in your courses, Ask a tutor for help and get answers for your problems !! **

©TutorsGlobe All rights reserved 2022-2023.

## Q : What alternatives does he have to limit his risk

Mr. Shanku has borrowed dollars in the U.S., but is now concerned about its currency risk. What alternatives does he have to limit his risk? Be specific in your recommendation.