Macroeconomics problem
plz help solve these problem
1. If Fed A cares only about keeping the price level stable and Fed B cares only about keeping output at its natural level, then in response to an exogenous increase in the A) both Fed A and Fed B should increase the quantity of money. B) Fed A should increase the quantity of money whereas Fed B should keep it price of oil stable. C) Fed A should keep the quantity of money stable whereas Fed B should increase it. D) both Fed A and Fed B should keep the quantity of money stable. 2. If Fed A cares only about keeping the price level stable and Fed B cares only about keeping output at its natural level, then in response to an exogenous decrease in velocity of money: A) both Fed A and Fed B should increase the quantity of money B) Fed A should increase the quantity of money whereas Fed B should keep it stable. C) Fed A should keep the quantity of money stable whereas Fed B should increase it. D) both Fed A and Fed B should keep the quantity of money stable 3. If the Fed accommodates an adverse supply shock, output falls and prices rise A) less; more B) less; less C) more; less D) more; more 4. According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and according to the Fisher effect, tightening the money supply will nominal interest rates in the long run. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase
Answer 1 : Option C is correct. It means that fed A should keep the quantity of money is stable where as fed B should increases it.When there is an exogenous increases to in the price level which resulted in increasing the price level in fed B as they don\'t care about the money level and price remain stable.
Answer 2: Option A is correct. When exogenous velocity of money has been increased which resulted in increasing the quantity of money. It shows that when velocity increases than quantity of money automatic increases.
Answer 3: Option A is correct. When there is an adverse supply shock the output level has been slowdown where as price level increases at greater phase.
Answer 4: Option B is correct. As theory of liquidity preference shows that as supply of money increases with nominal interest rate but as per Fisher equation terminology is quite different. Here the money supply tighten resulted in money supply will decreases nominal interest rate in long run scanerio. It has taken Inflation into an account.
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