12. Use the classical model of a closed economy to predict how each of the following shocksshould affect a nation's real aggregate income (Y), national saving (S), investment (1I), andinterest rate (r). Be sure in each case to clearly state your predicted direction of change (up,down, or no change) for all four variables and illustrate your predictions for S, I and r with asupply/demand diagram for the loanable funds market.a. The size of the labor force shrinks (L decreases)b. Technological innovation increases total factor productivity (A increases)c. The government cuts taxes (T decreases)d. Autonomous investment (io) decreases.

Classical closed model is known as a basic model of employment and output determination. It is…

Answered: 12. Use the classical model of a closed…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3) In the macroeconomic model below, Y is aggregate output, C is aggregate consump- tion, Io is aggregate investment, Go is government spending, T is the total amount of taxes collected by the government, and t is income tax rate. The variables Y, C, and I are endogenous, Go, Io, and t are exogenous, and a, b, and k are parameters. Y = C + Io + Go C = a + b(YT) T=k+tY (a > 0, b = (0, 1)) (k > 0, t = (0, 1)) Calculate the determinant of the coefficient matrix A associated with this system of equations. The determinant of the coefficient matrix A is: a) |A| = 1-b+ bt b) |A| = 1-b-bt + a c) |A| = b + t d) |A| = 1+ a + b - t e) |A| = Go +b+t f) A = Iob+t g) A = Go + Io +b-t
3) In the macroeconomic model below, Y is aggregate output, C is aggregate consump- tion, Io is aggregate investment, Go is government spending, T is the total amount of taxes collected by the government, and t is income tax rate. The variables Y, C, and I are endogenous, Go, Io, and t are exogenous, and a, b, and k are parameters. Y=C+ Io + Go C=a+b(Y-T) T=k+tY (a > 0,6€ (0,1)) (k>0, t€ (0,1)) Calculate the determinant of the coefficient matrix A associated with this system of equations. The determinant of the coefficient matrix A is: 1-b.+ bt a) A b) A-1-b-bt + a c) |A|=b+t d) A1+a+b-t e) |A| =Go+b+t f) A-Io-b+t 8) A = Go + Io +b-t
Do Answer ASAP.
1. Consider the following simple Keynesian model, (i) Rewrite the model into matrix form with Y, C and I as endogenous variables and Go and i as exogenous variables. (The coefficient matrix must be a 3 by 3 matrix.) Y=C+I+Go C = 200+ 0.8Y I= 1000-2000 (ii) Compute the equilibria Y*, C* and I* as functions of Go and i using Cramer's rule. 8Y* (iii) Find and di ƏY* ƏGo (iv) Give an economic interpretation of national income? ƏY* " ƏGo what should the government do if it wants to raise
2. Suppose that a representative household is part of a two-period economy, with a commodity and a credit market. He holds no initial assets (bonds or money) and no final assets, by the end of the second period. Assume that, for some exogenous reason, the price level decreases at the beginning of period one, before consumption and labor effort decisions are made. This drop is expected to last forever. a) Do you expect this change to yield any real effect? More exactly, are real aggregate output demand (through consumption) or supply (through labor effort) affected? Explain why or why not. b) Imagine now that this household leaves a bequest to the next generation. As a result, a decision is made to hold a fixed real value of bonds (b2/P) by the end of the second period. These will be paid to the children of the household. Under these conditions, will there be any impact from the price level change over the individual consumption and labor effort choices of the representative household…
1. Consider the following classical macroeconomic model. Y = C(Y –T) + I(r -x)+G 0 0,1, 0 (4) N = N° - NS Y = F(N,K) F, > 0 (5) Y, C, T, ! , G, r, 1 M, P N, are respectively output, consumption, taxes, investment, government consumption, the nominal interest rate, the expected inflation rate, the money supply the price level, Y,P,N,r,W and labor. The endogenous variables are 1 is predetermined, and the policy variables G, and M, and the capital stock, K are exogenous. а) Interpret the equations. b) What are the effects of an adverse supply shock, described by a fall in the capital stock on the price level, the real wage, employment, and output. c) Why do fiscal policy and monetary policy not affect output or employment? d) What are the effects of a fiscal and a monetary expansion on the price level and interest rate?
1 Fully develop (mathematically and graphically) the Keynesian Cross (Expenditures=Output) model. Be explicit regarding what variables are endogenous and what variables are exogenous.
QUESTION 2 Consider the closed-economy market-clearing model. Assume that the marginal propensity to consume is 0.8. Tax revenue decreases by $5 billion, while output and government spending remain the same (a) Calculate the dollar change in consumption. (b) Calculate the dollar change in national saving. (c) Does the equilibrium real interest rate increase, decrease, or stay the same? n toolhar nress ALT+F10 (PC) or ALT+FN+F10 (Mac).
4. Consider the real intertemporal model with investment. A war breaks out that is widely expected to last only one year. a) Determine the shock in the economy to model a short war. b) Determine the new equilibrium for aggregate output, employment, wage, and interest rate and carefully explain your results. Show this in your diagram.
1. How many recessions did the US economy experience between 1929 and 2020? What were the four longest recessions between 1929 and 2019, not including the COVID-19 recession? What were the three deepest recessions between 1929 and 2019? That is, during which three recessions was the decline in real GDP biggest from peak to through? How long did the COVID-19 recession last?
2. Consider the IS-LM model derived in class. Suppose the economy of Economica is initially at the general equilibrium. This year, Economica's economy is hit by a negative oil price shock, i.e., oil prices in Economica increase dramatically. a. Explain and show graphically how an oil price shock affects the labor, goods, or the asset market b. Explain and show graphically how an oil price shock affects the short-run equilibrium in the IS-LM model c. Explain and show graphically how an oil price shock affects the general (long-run) equilibrium in the IS-LM model
Economics Suppose that the effects of COVID-19 on the economy can be thought of as a permanent negative productivity shock, i.e., a permanent decrease of the production owing to lower total factor productivity. What does the model predict will happen to the following variables: (1) real interest rate, (2) real output), (3) real consumption, (4) real investment, (5) labor input? For each variable explain why COVID-19 would have the predicted effect.

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