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ECON 101 NLU Monetary Policy Impact Macroeconomic Performance Questions
Milestone 4: What Can the Fed Do?
- Read the instructions below.
- Complete the packet.
- Submit in the Assignments Dropbox.
Milestone 4: Instructions
This milestone will focus on course outcomes that cover utilizing models to predict changes in interest rates. Furthermore, you will see how the role of money, the banking system, and monetary policy impact macroeconomic performance.
In this milestone, you are given three scenarios. In each scenario, you will need to determine the appropriate monetary policy response and its impact on the economy. You will also need to trace the chain of events that will occur based on the monetary policy action and whether or not this will help or harm the economy. Be sure to utilize the formulas and concepts learned from Module 7 and 8.
Answer the following questions and be sure to show the formulas used and all calculations for your answers.
The economy of Chicagoland is currently producing $100 Million worth of goods and services (current real GDP). Full employment output for Chicagoland is $75 Million worth of goods and services (full employment real GDP). It has recently been experiencing unusual inflation as well.
- Use an AD/AS graph to show the macroeconomy of Chicagoland. Label the graph correctly.
- First, show the long run equilibrium of Chicagoland using aggregate demand (AD) and short run aggregate supply (SRAS) at full employment. Label the full employment output Yf, and the corresponding price level, PL.
- Then, use Y1 to represent the current real GDP and PL1 to represent the current price level.
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