Give a hypothetical example that shows how monetary policy could fail because of bad timing.
What will be an ideal response?
Examples will vary but should show a thorough understanding of how timing can cause a monetary policy to fail. For example, Country A has been suffering through a recession for seven years. Most economists agree that to stimulate the economy, an aggressive expansionary policy needs to be implemented. As a result, the central bank significantly increases the money supply, hoping that interest rates will lower and investment will increase. However, soon after this policy is started, a candidate unexpectedly wins the election for president of the nation. This candidate has strong pro-business leanings and has many plans that businesses find encouraging. As a result, businesses gain more confidence in the economy, shifting the aggregate demand curve to the right. So when the expansionary policy takes effect, it causes inflation instead of helping the economy.
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Recall the Application about incentives to immunize children in developing countries to answer the following question(s). According to this Application, which of the following were given to parents who immunized their children?
A. dal (a common Indian food) B. a set of cooking pans C. rupees D. both dal (a common Indian food) and a set of cooking pans
Twenty-five students in a class take a test for which the average grade is 75. Then a twenty-sixth student enters the class, takes the same test, and scores 70. The test average grade calculated with 26 students will
A. fall below 75. B. rise above 75. C. change from 75 but the direction is unclear. D. still equal 75.
The slope of a positive relationship is
A) positive. B) undefined. C) positive to the right of the maximum point and negative to the left. D) constant as long as the relationship is nonlinear.
Business cycles result from recurrent shifts of the aggregate supply and demand curves.
Answer the following statement true (T) or false (F)