Scenario 6-1
Suppose That Demand in the Market for Good $$Q ^ { D } = 30 - P$$

question 147

Essay

Scenario 6-1
Suppose that demand in the market for good X is given by the equation
$$Q ^ { D } = 30 - P$$ and that supply in the market for good X is given by the equation
$$Q ^ { S } = 2 P$$
-Refer to Scenario 6-1. If the government set a price ceiling at $12, would there be a shortage or surplus, and how large would be the shortage/surplus?

Describe the benefits and costs associated with low levels of inflation and the rationale behind targeting zero inflation.

Identify the Federal Reserve's legally mandated goals and the challenges of balancing these objectives.

Explain the concept of time inconsistency in monetary policy and its implications for economic stability.

Understand the costs of inflation and the impact of fiscal policies on the economy.

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Definitions:

Fed

Short for the Federal Reserve, which is the central banking system of the United States, responsible for monetary policy.

Externalities

Costs or benefits that affect parties who did not choose to incur that cost or benefit, often leading to market failure if unaddressed.

Moral Hazard

A situation in which one party engages in risky behavior or lacks incentive to guard against risk because another party bears the consequences.

Moral Hazard

The situation in which one party can take risks because they know that they will not have to bear the full consequences of their actions.