1. What is meant by wage- price flexibility mechanism? How was it shown by the classical economists that given a free enterprise competitive economic system flexibility of wages and prices always ensures full employment. Critically evaluate.

1. What is meant by wage- price flexibility mechanism? How was it shown by the classical economists that given a free enterprise competitive economic system flexibility of wages and prices always ensures full employment. Critically evaluate.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Expectations Theory And The Economy

Section16.3: Rational Expectations And New Classical Theory

Problem 3ST

See similar textbooks

Similar questions

16. Keynes (1936) argued that, from a policy perspective, everything that can be achieved by a nominal wage cut can be more effectively achieved through an appropriate monetary policy. (a) Does this statement hold in the deﬁcient-demand Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity? (b) Does this statement hold in the new Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity?
3. An economy has full-employment output of 1000. The other aggregates are as follows Cd = Id = 200+0.8(YT) - 500r 200-500r G = 196 T = 20+0.25Y Money demand is Md P = 0.5Y -250(r+π²) where expected rate of inflation л² = 0.10. The nominal supply of money M = 9890. 3.1 What are the general equilibrium values of the real interest rate, price level, consumption, and and investment?. 3.2 Suppose that government purchases are increased to G = 216. What are the new gen- eral equilibrium values of the real interest rate, the price level, consumption, and and investment?.
Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M$/P Time t Time t 0 1 2 4 1 2 3 6. Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t = 1, and interpret time t = 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements: (B) Can the shock be a permanent change, positive or negative, in nominal money supply Ms ? Motivate your answer.
The economic response to the overnight reduction in the French money supply by 20 percent in 1724: confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level. O confirmed the neutrality of money because no real variables were affected by this nominal change. confirmed that money is not neutral in the short run because both output and prices dropped. contradicted Okun's law because decreases in output were not associated with increases in unemployment.
please do all the questions
Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M$1P Time t Time t 1 2 3 4 5 6. 1 3 4 Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t = 1, and interpret time t= 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements: (d) Can the shock be of a permanent change, positive or negative, in the slope of labour supply B? Motivate your answer. Add any further considerations that you think can be relevant to this exercise.
E4 Assume the real money demand of an economy is:(Md/P) = 2×Yb(r + πe)-awhere 0 < b < 1 and 0 < a < 1.a) Use the real money demand above to determine the velocity of money.b) Does the quantity theory of money hold in this economy? Explain.c) Show with calculus how the velocity of money reacts to a change in output and a changein the nominal interest rate.d) Find the income and the nominal interest rate elasticities of money demand.
+ in130.acellus.com/Student Functions/Interface/acellus_engine.html?ClassID=1881940841# What aspect of Aggregate Demand results in monetary gain from "factors of production" to households? A. investment B. tariffs C. interest yright © 2003-2022 International Academy of Science. All Rights Reserved. C 5 6 & O acer * 8 9 HE 0 4 $16 + backspace
Question 6. Suppose that money supply and money demand determine the price level (P) in an economy. As shown in the equation below, in equilibrium, money demand equals to money supply. Equilibrium M L(r +Er,Y) P The supply of real money balances Real money demand where M is the quantity of money, P is the price level, r is the real interest rate, En is the expected inflation, and Y is the national income. a. Does the real money demand positively or negatively depend on nominal interest rate, į =r+Ex? Does the real money demand positively or negatively depend on national income, Y? Why? Briefly explain your answer. b. For given values of r, Y and M, explain how nominal interest rate (i), real money demand, and price level (P) respond to an increase in Er. Briefly explain your answer.
Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M³/P Time t Time t 1 3 4 1 2 3 4 6. Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t= 1, and interpret time t = 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements: (a) Can the shock be a permanent change, positive or negative, in public expenditures G? Motivate your answer.
Q-1: b. Derive a demand function for real money balances from the quantity theory of money equation. Provide an economic intuition for that money demand expression.
Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M³/P + Time t Time t 1 3 4 6. 1 2 4 6. Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t = 1, and interpret time t = 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements: %3D (B) Can the shock be a permanent change, positive or negative, in nominal money supply Ms ? Motivate your answer. www