a. A hurricane that destroys half the supply of goods produced in Florida.
Disasters increase the scarcity but they don’t reduce the ability of these markets to be able to respond to the scarcity. When a Hurricane strikes and destroys the supply of goods produced in Florida, the market will respond by decentralized communication of dispersed knowledge, eliminating the problems associated with centralized collection and analysis of massive amounts of rapidly changing information. This can be considered as a shift in weather and therefore the results will be an increase in LRAS and SRAS. A sustainable, higher level of real output will be the end results. This is a shift that needs to be taken with a lot of care because of the fact that any strategy employed is likely to impact the economy.
b. An increase in the money supply.
An increase in money supply will result into an increase in the wealth of people who are holding the fixed value of money and lead to lower interest rates. Domestic goods will be made cheaper compared to foreign goods. The AD curve will slope down and this is because of the fact that a reduction in the price levels will increase the quantity of goods and services that are demanded. The value of money will depreciate and therefore the curve will shift to the left as a …show more content…
Open market operations enable the Federal Reserve to achieve its monetary policy objectives. Open market operations enable the Federal Reserve to affect the supply of reserve balances in the banking system and thereby influence short-term interest rates and reach other monetary policy targets. The fed can affect prices through open market operation by selling bonds which automatically lowers prices but interests go up in the process. OMO has the same effect of lowering rates/increasing money supply or rising rates/decreasing money supply as direct manipulation of interest rates. The difference in this case is the fact that OMO is a tool that is used for fine
Disasters increase the scarcity but they don’t reduce the ability of these markets to be able to respond to the scarcity. When a Hurricane strikes and destroys the supply of goods produced in Florida, the market will respond by decentralized communication of dispersed knowledge, eliminating the problems associated with centralized collection and analysis of massive amounts of rapidly changing information. This can be considered as a shift in weather and therefore the results will be an increase in LRAS and SRAS. A sustainable, higher level of real output will be the end results. This is a shift that needs to be taken with a lot of care because of the fact that any strategy employed is likely to impact the economy.
b. An increase in the money supply.
An increase in money supply will result into an increase in the wealth of people who are holding the fixed value of money and lead to lower interest rates. Domestic goods will be made cheaper compared to foreign goods. The AD curve will slope down and this is because of the fact that a reduction in the price levels will increase the quantity of goods and services that are demanded. The value of money will depreciate and therefore the curve will shift to the left as a …show more content…
Open market operations enable the Federal Reserve to achieve its monetary policy objectives. Open market operations enable the Federal Reserve to affect the supply of reserve balances in the banking system and thereby influence short-term interest rates and reach other monetary policy targets. The fed can affect prices through open market operation by selling bonds which automatically lowers prices but interests go up in the process. OMO has the same effect of lowering rates/increasing money supply or rising rates/decreasing money supply as direct manipulation of interest rates. The difference in this case is the fact that OMO is a tool that is used for fine