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- suppose a Keynesian macroeconomic model is characterized with the following equations: Y = C + I + G Goods markets C = C = 320 + 0.8YdYd = Y − TI = 40 − 40rG = 80T = 50 Money marketsMoney demand:(M/P)d = 500 + 0.8 − rMoney supply: MSP = 800Derive IS and LM equations and derive equilibrium income level and interest rate.14) Detail the workings of the New Keynesian Dynamic Stochastic Equilibrium model.1 Fully develop (mathematically and graphically) the Keynesian Cross (Expenditures=Output) model. Be explicit regarding what variables are endogenous and what variables are exogenous.
- Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and also confirm whether all three goals of a macro economy are being achieved in each zone. 2. Draw and properly label the AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how Keynesians suggest that recessionary and inflationary gaps be closed. 3. Draw and properly label AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how neoclassicals suggest that recessionary and inflationary gaps be closed.2. Let's create a simple, two-period neoclassical model, far simpler than the models of GLS Chapter 12. In this question, in period t you only use labor to make period t output, and then you decide how much of that output to convert into capital that can be used later to help make period t+1 output. That means the "representative agent" has to decide how much of period t output to consume rather than save, but there's no such choice in period t+1. After all, t+1 is the end of time. Output is made in this very simple, constant returns to scale manner, so in each period double the input creates double the output: YN, YzK You get log utility from consumption in the first period, but square root in the second period (I chose that for a reason-notice that log has stronger diminishing marginal utility than square root!). Of course, you don't like work, so extra hours of work hurt your utility: U = ln(Ct) mNt + 2(C++1) 1/2 -If the economy has rational expectations and the model is sticky price model. Could you explain why the following statement true in macroeconomics?
- 1. Consider the following simple Keynesian model, (i) Rewrite the model into matrix form with Y, C and I as endogenous variables and Go and i as exogenous variables. (The coefficient matrix must be a 3 by 3 matrix.) Y=C+I+Go C = 200+ 0.8Y I= 1000-2000 (ii) Compute the equilibria Y*, C* and I* as functions of Go and i using Cramer's rule. 8Y* (iii) Find and di ƏY* ƏGo (iv) Give an economic interpretation of national income? ƏY* " ƏGo what should the government do if it wants to raiseTo study macroeconomics, one needs various models with different assumptions about the flexibility and/or stickiness of price levels. This is because: A.) the price flexibility is a short-run phenomenon while, the price stickiness is a long-run phenomenon. B.) the economy behaves so differently depending on how much time has passed after a demand shock. C.) various government policies are useless to eliminate the effects of an unexpected demand shock. D.) the economy behaves similarly to demand shocks regardless of the length of time.(a) Suppose that, in a liquidity trap, bank reserves are less liquid than government debt. If the central bank conducts an open market sale of government debt, what will be the effect on the price level? Use a diagram, explain your results. (b) Suppose that there is a decrease in the price of housing, which the central bank judges is a temporary asset price decrease. In the New Keynesian model, determine the central bank's optimal response to this asset price increase, using diagrams. (c) Suppose initially that inflation is at the central bank's target and the output gap is zero. Then, government spending goes up. Determine, with the aid of diagrams, how the degree of price stickiness affects the central bank's optimal response and explain your results.
- You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible. 1. What is the fed trying to do?A. slow down the economyB. stimulate the economyC. remains unchanged 2. How is the fed doing it?A. buying bondsB. selling bondsC. remains unchanged 3. What happens to bond prices?A. increaseB. decreaseC. remains unchanged 4. What happens to the interest rate?A. increaseB. decreaseC. remains unchangedA central bank forecasts a rise in raw material costs. The government plans to increase spending on health and education. The initial equilibrium point is shown by X on the aggregate demand, AD, and aggregate supply, AS, diagram. What would be the new equilibrium point in the short run if the forecasts prove to be accurate and the government plans are implemented? AS, AS2 general price level AS B A AD, AD AD, real output C.7. Consider the model of illiquidity where individuals live for three periods. Each individual is endowed with y units of the consumption good when young and with nothing in the other two periods of life. Let Nt be the number of individuals in the generation born at t with N₁ = nNt-1. There are two types of assets in the economy. (No inside money or private IOUS are available.) One asset is fiat money, with a fixed supply M. The other asset is capital. A unit of capital can be created from a unit of the consumption good in any period t and capital can be created in any amount. Two periods after it is created, a unit of capital produces X units of the consumption good and then disintegrates. Let X > n². Assume that the stock of money is distributed equally to the initial middle-aged and each initial old can produce Xko units of the consumption good in the first period. Now suppose that an individual's preference is given by U(C₁, C2, C3) = C₁ C2 C3. (a) Find the rate of return on fiat…