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In late 2000, there were signs the U.S. economy might be heading into a recession. Some argued that the rise in energy prices during 2000 was the cause of the economic slowdown. Others pointed to the decline in the stock market and argued that this decline in wealth would reduce consumption spending. Assume the economy is initially at full employment.
(a) Using the ADI-IA (inflation adjustment) framework, explain how a rise in energy prices would affect output and inflation in the short run.
(b) Using the ADI-IA framework, explain how a fall in stock prices would affect output and inflation in the short run.
(c) Suppose you are chair of the Federal Reserve Board. If your only concern is keeping inflation stable, would you raise interest rates or would you lower them if you believe energy prices are the cause of the slowdown? Would you raise interest rates or would you lower them if you believe the stock market decline is the cause of the slowdown?
(d) Suppose you are chair of the Federal Reserve Board. If your only concern is keeping unemployment stable, would you raise interest rates or would you lower them if you believe energy prices are the cause of the slowdown? Would you raise interest rates or would you lower them if you believe the stock market decline is the cause of the slowdown?
Suppose that the Fed's inflation target is 2%, potential output growth is 3.5%, and velocity is a function of how much the interest rate differs from 5%: %^V= 0.5 X (i-5). Suppose that a model of the economy suggests that the real interest rate
given the following variables in the open economy aggregate expenditure model, autonomus consumption=200, autonomus investment=200, government spending=100, export spending=100, taxes=0, marginal propensity to consume=0.8
Consider a seller who values a car at $9,500 and a buyer who values the same car at $10,000. What total surplus will result from a transaction between the two when the seller is faced with the following sales tax rates: 0%, 2%, 4%, 6%, and 8%
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Discuss rigorously with detail analysis that, Exact relationship, functional relationship and ceteris paribus clause are the major problems of Econometrics
What interest rate would be needed on pound securities, such as government bonds, for you to be willing to buy those securities with your dollars today and then sell them in a year in exchange for dollars?
My wages are going up 5 percent a year. If only inflation weren t 5 percent a year, I would be rich.
Consider a market for a homgeneous product with demand given by Q = 37.5 - .25P. There are two firms, each with a constant marginal cost equal to 40. a. Determine the output and price under a cournot equilibrium.
What happens to the equilibrium real interest rate and the quantity of loanable funds? What will be the effect on the level of investment by firms and the economy's capital stock in the future?
What term describes what these critics are claiming is occurring with regard to U.S.-Mexican trade as a result of NAFTA? Explain your reasoning.
Calculate measured employment and unemployment and the measured labor force for each economy. Calculate the measured unemployment rate and participation rate for each economy. In which economy is measured GDP higher?
The cost function is given by c=100+20q+4q^4 Provide the output, fixed cost, variable cost, total cost marginal cost, average cost, average fixed cost, and average variable cost using integer values from q=1 to q=4.
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