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1. In this question we will analyze the following statement, and show what would happen if the advice given was followed by the Fed: “Higher consumer confidence increases aggregate demand. To offset this we must decrease the money supply. Then the price level won't need to adjust to restore equilibrium, and we'll prevent inflation.”
Consider that an increase in of consumer confidence corresponds to an increase in households' expectations about their future income.
a. State what happens to the FE and IS curves (see problem set 7). Explain with the help of graphs what happens in the short-run to the expected real interest rate, output and employment, consumption, savings and investment (If necessary assume that the shift of the FE line is smaller than the shift of the IS curve).
b. Explain with the help of graphs how the economy converges to the short-run general equilibrium after the shock.
c. Explain with the help of graphs what the Fed should do in order to avoid a change in output in the short-run.
Explain why does price equal marginal revenue for the purely competitive firm. what is the relationship to the demand curve for the firm.
Tax cuts or government spending? Debate heats up over best way to grow the economy. Larry Summers has an article in "Foreign Affairs" saying we're in a very unusual situation, you call it the liquidity trap. He calls it secular stagnation.
Would you rather receive $100 today or $120 in one year? b Would you rather receive $205 today or $240 in one year? c Would you rather receive $500 in one year or $610 in two years?
For flood control purposes, the government is considering three undeveloped sites for a water detention area. The estimated costs associated with each alternative are given below. Use the conventional B-C ratio method, with AW as the equivalent-worth..
Car A initially costs $500 more than Car B, but it consumes 0.04 gallon/mile versus 0.05 gallon/mile for B. Both vehicles last 8 years, and B's salvage value is $100 smaller than A's. Fuel costs $1.70 per gallon. Other things being equal, which optio..
Suppose, as in the federal income tax code for the United States, that the representative consumer faces a wage income tax with a standard deduction. where C is consumption, l is leisure, w is the wage, pi denotes dividends, and h is the total amount..
Assuming that wages in an alternative location are expected to always be higher than wages in the current location, an increase in the interest rate is expected to cause the net benefit associated with mobility to:
A new electric generation plant is expected to cost $43,250,000 to complete. The revenues generated by the new plant are expected to be $3,875,000 per year, while operational expenses are estimated to be $2,000,000 per year. If the plant is expected ..
Explain which of the two classmates would you prefer as a partner. Would he also want you as a partner.
Changes in tastes reduce the demand for wheat substantially. What happens to price and output in the market for wheat? What happens to the price, output, and profits of the individual wheat farmer in the short run? Illustrate with diagrams.
A natural spring flows exclusively on Ben's property. Residents of nearby Dry Gulch believe that minerals in the stream give the water special medicinal value. The graph below shows the demand for Ben's Miracle Water, the corresponding marginal reven..
q. under what elasticity conditions would the following be trueincreasing the minimum wage will result in a decrease in
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