Solution has been provided in step by step Question 1.Consider a two-period dynamic macroeconomic model with a representative household, a rep-resentative firm, and a government. The representative household makes consumption-saving andlabor-supply decisions. The representative firm makes labor demand and investment decisions.(a) The government announces that an increase in government expenditure will occur next period.Use the model to study the effects on current aggregate output and current employment.Explain your results.(b) Consider the two-period dynamic macroeconomic model again. Analyze the effects of a veryshort-lived temporary positive shock to total factor productivity (TFP) on output, employ-ment, consumption, investment, the real wage and the real interest rate. Because the shock isvery short-lived you should assume that its impact on lifetime wealth is negligibly small.

Part (b): Temporary Positive Shock to Total Factor Productivity (TFP)1. Output: An increase in TFP…

Answered: Question 1. Consider a two-period…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. Graphically illustrate the Keynesian Model, show the equilibrium level of GDP (label it Ye) and the full employment level of GDP (label it Yf).
5. Show how to derive the aggregate demand curve using the fixed-price Keynesian model.
If the economy had been operating at a full- employment equilibrium, a. Describe the macroeconomic equilibrium after the rise in consumer spending. b. Explain and draw a graph to illustrate how the economy can adjust in the long run to restore a full-employment equilibrium. The magazine Women of China reported that Chinese women in big cities spent 63% of their income on consumer goods last year, up from a meager 26% in 2007. Clothing accounted for the biggest chunk of that spending, at nearly 30%, followed by digital products such as cell phones and cameras (11%) and travel (10%). Chinese consumption as a whole grew faster than the overall economy in the first half of the year and is expected to reach 42% of GDP by 2020, up from the current 36%.
1. A Keynesian macroeconomic model with a single-time-period lag on the consumption function, as described below, is initially in equilibrium and the level of I, is given at 500. Y, = C, + I, C, = 750 + 0.5Y I, is then increased to 650. Use difference equation analysis to find the value of Y, in the fourth time period after this disturbance to the system. Will it then be within 1% of its new equilibrium level? Th
Analyzing Macroeconomic Events with the IS-MP Diagram. Consider the following events in the macroeconomy. Show how to think about them using the IS-MP diagram. For each, explain how and why GDP in the United States is affected in the short run and show how the central bank should respond if it wishes to stabilize output. (a) The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they get a credit that reduces the taxes they pay on corporate income. (b) A housing bubble bursts, so that housing prices fall by 20% and new home sales drop sharply. (c) A resurgence of growth in Japan leads to an unexpected increase in the demand by Japanese consumers for U.S. goods.
According to macroeconomic theory, a concurrent increase in AD and decrease in AS will cause __________. Group of answer choices deflation economic recession economic boom inflation
A4 Imagine that in the year 2035, Japan’s economy shrinks significantly, causing a decrease in investment in the U.S. economy. Use the ADAS model to explain the likely short run impacts on U.S. GDP and the aggregate price level. What do you anticipate to happen to U.S. consumption expenditures and U.S. employment? Explain your reasoning for each of your predictions and show graphically as appropriate. Students may utilize Paint, Word (the shapes tool under Insert), OneNote (Draw tab), or hand draw the graphs.
Figure 1: Hayek’s (Classical) AD-AS Model 1.1. Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? 1.2. Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not? Figure 2: Keynes’s AD-AS Model 2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation and recession? 2.2. In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. Describe the AS curve in the Immediate Short run. Describe the AS curve…
5. Consider an economy described by the Keynesian version of the AD-AS model with imperfect competition in a condition of full employment. To reduce the Pareto inefficiency, the government increases public transfers. What happens to the levels of output and prices in the short run? And in the long run?
According to the Keynesian macroeconomic model, the level of intended investment... (check all that apply) is autonomous is determined by the inflation rate depends on the level of optimism or pessimism among investors is determined by savings and the interest rate is a function of the level of output and income is a function of the unemployment rate
Now suppose I (inventories) decreases by $80 billion as a result of a macroeconomic shock. Modify your macroeconomic model to reflect this change ceteris paribus and answer the following questions (questions 21 - 25). - At GDP of 7400 1. Inventories are in surplus by 80 2. Inventories are in shortage by 80 3. Equilibrium is achieved by the macroeconomy according to the Keynesians 4. Inventories are in surplus by 160 - At GDP of 9000 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3. Equilibrium is achieved by the macroeconomy according to both the Keynesian and Neoclassical economists 4. Inventories are in surplus by 160 - At GDP of 8200 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3. Equilibrium is achieved by the macroeconomy according to both the Keynesian and Neoclassical economists 4. Inventories are in shortage by 4000 - At GDP of 8200 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3.…
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 raise

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