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Question: A financial crisis: Suppose the economy starts with GDP at potential, the real interest rate and the marginal product of capital both equal to 3 percent, and a stable inflation rate of 2 percent. A mild financial crisis hits that raises the financial friction from zero to 2 percent.
(a) Analyze the effect of this shock in an IS/MP diagram.
(b) What policy response would you recommend to the Federal Reserve? What would be the effect of this policy response on the economy?
(c) How would your answer to part (b) change if the financial crisis were very severe, raising the financial friction to 6 percent?
(d) What other policy responses might be considered in this case?
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Draw a graph how hot weather affects the market equilibrium pice and quantity of gas - during the Summer of 2012 the US experienced record hot temperatures.
A government researcher examines the factors that influence a city's crime rate. For 41 cities, she collects the crime rate (crimes per 100,000 residents), the poverty rate (in %), the median income (in $1,000s), the percent of residents younger than..
If a monopolist had no production costs, it would produce the output where marginal revenue intersects the quantity axis.
QRW's marginal tax rate is 40%. Additional working capital of $3,000 is required to maintain the new machine and higher sales level. The new lathe is expected to be sold for $5,000 at the end of the project's ten-year life. What is the incremental..
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Suppose that when the price of bicycles is $100, 500 bicycles are demanded and when the price of bicycles is $200, 100 bicycles are demanded. Using the standard percentage change formula (not the midpoint method), what is the percentage change in ..
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