Question
From 1929 to 1933, the nominal money supply in the U.S. fell 25%, and the unemployment rate rose from 3.2% to 25.2%. At the same
From 1929 to 1933, the nominal money supply in the U.S. fell 25%, and the unemployment rate rose from 3.2% to 25.2%. At the same time, the price level fell approximately 25%, and nominal interest rates declined continually.
1. Are these data consistent with the hypothesis that contractionary monetary policy caused the Great Depression? Explain.
2. If Germany has low inflation and Italy has high inflation, what will happen to the exchange rate between the German mark and the Italian Lira?
3. Using an IS-LM model, AD-AS model, and a Phillips curve, explain the impact of an increase in oil prices on the U.S. economy.
4. Analyze the short run impact on real output, employment, prices, and real interest rates.
5. Be sure to explain how it is possible to have an increase in the rate of unemployment while simultaneously experiencing an increase in inflation
6. Suppose that this increase in oil prices was permanent. What are the long run effects on the economy?
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