If the Reserve Bank's policy reaction function is r=0.02+π, the planned aggregate expenditure function for the economy is PAE=5000+0.8Y-20 000r, current inflation equals 6% (π=0.06), and potential output (Y*) equals 19 000, then short-run equilibrium output equals ______ and inflation will eventually equal ____ % when the economy returns to potential.

The self-correcting tendency of the economy means that falling inflation eventually eliminates:

To answer this question, use

the

The

diagram below

illustrates the relationship between demand for money and

Which diagram below shows what will happen to the money demand when there is an increase in output (Y)?

1. 

2. 

3. 

4. 

Suppose the policy reaction function for the RBA shifts upwards from the solid line to the dashed line. What could have produced this movement?

Recall the PAE model, where 

PAE = C + I^P + G; 

C = C₀ + c(Y-T) ;   I^P = I₀ ;   G= G₀;   T = T₀ + tY.

The following diagram show

the channel system of Cash Rate use by RBA. 

Suppose the cash rate is at the

policy target rate. 

In the below diagram, policy target rate equals i^T, IOR stands for Interest on Reserves, ES stands for Exchange Settlement funds.

The central bank knows that

there will be large inflow of funds to the government account at the end of

financial year due to payment of income tax from private sector. Assume that

before the change the supply curve for reserves is given by ES

1. 

2. 

3. 

Recall the PAE model you studied in class, where 

The unlabelled diagram below presents the initial equilibrium in Country X. 

Assume that the government of Country X has increased taxes (T) and its expenditures (G), such that the change in T equals the change in G, keeping the government budget at balance. Which diagram below is the best representation of this change?

1. 

2.

3.

4. 

5. 

The following diagram shows the channel system of Cash Rate use by the Central Bank. 

Suppose the cash rate is at the policy target rate. 

In the below diagram, policy target rate equals i^T, IOR stands for Interest on Reserves, ES funds stands for exchange settlement funds.

Suppose that there is an increase in money supply and the actual value of the cash rate is different from the Central Bank target rate. Following this change, the Central Bank undertakes open market operations (OMO) to return the actual rate to the target rate.

Given that the actions of the Central Bank are successful, which diagram can illustrate the impact of OMO of the Central Bank?

1. 

2. 

3. 

4. 

Consider the following economy depicted graphically below, where Y* is potential output in this economy. To bring output to potential:

To answer this question, use the model of demand for money that you have learned in class.

The diagram below illustrates the relationship between demand for money and nominal interest rate (i).

Which diagram below shows what will happen to the money demand when there is an increase in price level (P)?

1. 

2. 

3. 

4.