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Rule Based Monetary Policy and Debts and Deficits
1) Rule Based Monetary Policy: Below draw an AD/AS graph and a money market graph side-by-side. For the money market, use an upward sloping money supply curve and assume that the equilibrium interest rate in the money market is 5%. Also, assume that actual GDP is at full employment and that the equilibrium price level in the AD/AS graph is 100. Now shift AD to the right based on an increase in animal spirits. Show how the money market graph will adjust to a new equilibrium. Then explain and show what happens if the Fed acts to keep the equilibrium quantity of money constant. Is this rule based policy pro-cyclical or countercyclical? (explain)
2) Debts and Deficits: Compare the traditional view versus the view of Ricardian equivalence of the effects of a debt-financed tax cut on:
i) Current Consumption
ii) Current National Savings
iii) Current Interest rates
A study reported that a 10% increase in the price of cigarettes would reduce consumption by 4% in the short-run and by 7.5% in the long-run. Based on these estimates, what happens to the price elasticity of demand for cigarettes as more time elapses ..
1 describe the difference between ldquomoney marketrdquo debt instruments and ldquocapital marketrdquo debt instruments
select two countries that are currently in the news and briefly explain the situation between them.describe how the
Two variable inputs, labor (L) and materials (M), are used to produce output. Company's current level of output: CL = $10 / unit, MPL = 25 CM = $2 / unit, MPM = 4 (!) Decide whether the firm is operating efficiently, given that its objective is to mi..
Nike has significant sales in emerging markets. Assume that Nike announces that its earnings (reported in dollars) would be impacted by the depreciation of many of the emerging market currencies in relation to the dollar.
Pop Dillard keeps hundreds of dollars in his mattress, saying he's distrusted banks ever since the Great Depression. Does the money he holds in his mattress provide a service to him
Presume that during the past three years, equilibrium real GDP in a country rose steadily, from $450 billion to $500 billion, however even though the position of its aggregate demand curve remained unchanged, its equilibrium price level steadily decl..
Two countries, Sportsland and Foodland, have similar total quantities of labor, capital, and natural resources. Both can produce two goods, figs and footballs. Sportsland’s resources are particularly well suited to the production
develop a plan for managing your debt. how many sources of debt do you current have and what are the balances owed on
Find the first order conditions and find the asset demand function for a when utility takes the log form, as in 1B above.
Construct the diffusion index from month 2 to 3. This problem, we have three leading indicators and the diffusion index from month 1 to 2 is 66.7 (=2/3) because two indicators move up and one moves down
Suppose that you invest $100 today in a risk-free investment and let the 4 percent annual interest rate compound. Rounded to full dollars, what will be the value of your investment 4 years from now?
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