What is the short run equilibrium gdp abd real interest rate

Assignment Help Macroeconomics
Reference no: EM131519200

Assignment

Part 1

1. Using the Keynesian Model with wage rigidity show graphically what happens to interest rates, effective labor demand, prices, and GDP in the Short Run and Long Run when there is a collapse in consumer confidence?

2. Considering the classical model with misperceptions, is it in the best interest of the Federal Reserve to be honest and transparent, non transparent, or a liar when they are considering if they should do an Open Market Sale. Show this graphically for full credit.

3. Show graphically the concept of "crowding out of private investment" for both the Classical Model and the Keynesian Model using IS/LM/FE when the Government increases expenditure. In which is the crowding out larger?

4. What is both absolute and relative purchasing power parity? Provide definition and show using an equation.

5. Describe the pros and cons of a currency union. In particular in regards to the inclusion of Greece in the Euro zone.

6. Compare graphically the effects of an increased risk in the financial markets on GDP and Prices using both the Keynesian assumptions and the Classical Model with misperceptions.

7. Compare graphically and explain what happens to exchange rates and net exports when (1) the home country has a decrease in GDP with (2) when the rest of the world has a decrease in their interest rates.

8. What happens to r, y, and prices in the SR and the LR (Keynesian model) when the government conducts expansionary fiscal policy? Is the policy neutral in the SR or the LR? Why or why not? What are the ways the government can do expansionary fiscal policy?

Part 2

1. Using the IS/LM model, AD/AS, the Asset Market, and assuming a initial price level of 1:

Goods Market:                Money Market:
C=250 + 1/2(Y-T)           M/P=450
I=150-500r                    L(r,y)=.5y-500r
G=100                           Long-Term Inflation: 3%
T=100                           Natural Rate of Unemployment: 4%

a. What are the IS, LM, and AD equations-show work for full credit?

b. Calculate and show the equilibrium output, interest rate, unemployment, Taylor Rule Fed Funds, and prices graphically?

c. Considering a Keynesian Model, show graphically using IS/LM/FE, AD/AS, and the asset market what happens to P, Y, unemployment, and r in the SR and the LR when there is an increased risk in the bond market-changing money demands responsiveness to interest rates by 10%.

d. Numerically, what is the short run equilibrium GDP, Price, Real Interest Rate, Unemployment Rate, Taylor Rule Fed Funds, and Level of Investment?

e. Numerically, what is the long run equilibrium GDP, Price, Real Interest Rate, Taylor Rule Fed Funds, Level of Investment, and Unemployment Rate?

f. Suppose that policymakers decide to open their economy up and the country's NX= .1(Yforeign-Ydomestic)+500(rforeign-rdomestic), YForeign=1750 and rForeign=15%. What are the new IS and LM equations?

g. What is the equilibrium output, interest rates, and NX?

h. If the R.O.W. goes through a recession and their GDP falls to 1500 what is the new equilibrium values from part h? Draw this graphically.

Reference no: EM131519200

Questions Cloud

Determine a or b has the higher present value : Given the following two sets of cash flows, determine whether A or B has the higher present value. Assume an interest rate of 12%.
Describe major differences in the application of contingency : Describe the major differences in the application of contingency management to moderation-oriented treatment versus abstinence-based treatment
Estimate increases to westmede operating cash flows : As part of its annual capital budgeting cycle, the Welsh Westmede hotel is deciding whether investment proposal A or investment proposal B is more financially.
Briefly research a contemporary theory : Use outside sources to briefly research a contemporary theory about the causes for one of the following mental disorders: schizophrenia
What is the short run equilibrium gdp abd real interest rate : Numerically, what is the short run equilibrium GDP, Price, Real Interest Rate, Unemployment Rate, Taylor Rule Fed Funds, and Level of Investment?
At which time laundry equipment will have zero salvage value : Edmonton's Green Park Hotel is considering purchasing some new laundry equipment for $200,000. Currently the hotel is outsourcing its laundry activities.
Expansion project that requires an initial fixed asset : Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.88 million
Analyze the foundational concepts of gerontology : You have been asked to prepare a presentation for the Annual Gerontology Conference. Analyze the foundational concepts of gerontology
How should human resource management deal : How should Human Resource Management deal with the issues in the case? You need to explain how HRM should ensure the issues.

Reviews

Write a Review

Macroeconomics Questions & Answers

  Inflation targeting be a good policy

Why might it be difficult for the Fed to formally adopt inflation targeting?  Would inflation targeting be a good policy for the Fed in the present economic environment

  In using the taylor rule

In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?

  Describe the present economic crisis situation in europe

Describe the present economic crisis situation in Europe.  Why has it been so difficult for the Europeans to find a solution to this problem?   Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..

  Long-term federal government budget problems

Question:. Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading.

  Derive and compare demand curve

Question based on Derive and compare demand curve,  Derive Ambrose's demand function for peanuts. How does it compare with Johnny's demand curve for peanuts?

  Problem based on utility function

Problem based on  Utility Function - Problem,  Answer and explain the following using a diagram which is completely labeled.

  Laffer curve : tax rate and tax revenue

Question based on Laffer Curve : Tax Rate and Tax Revenue,  Do raising tax rates necessarily raise tax revenue? What factors affect how tax revenue changes when tax rates change?

  Problem - income elasticity of demand

Problem - Income Elasticity of Demand,  Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior; YED= +0.5 and YED= -2.5

  Positive balance of payment

Question Positive Balance of Payment: "Things will look good for the US if we could just get to where we are consistently running a positive Balance of Payments."

  Effect of recession on the investment curve

Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibrium real interest rate in the financial crisis that hits United States first starting in fall 2007.

  Affect of falling domestic investment on trade surplus and

How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world.

  Crises in the banking sector and bank run

Banking crises crisis decreases depositors' confidence in the banking system. What would be the effect of a rumor about a banking crisis on checkable deposits in such a country?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd