5. Consider an IS-TR model that consists of the following equations: Y = C + Ip C = d+0.5Y Ip 100 100i = i = : max{0, in + (Y — Yn)/Yn} Here d is a parameter reflecting aggregate consumption demand, Ip again denotes planned investment, and i interest rate. Notice that the last equation features zero lower bound on the interest rate. 4% (natural interest rate) and Yn Assume in = 400 (potential output). Determine a cut-off level d such that the zero lower bound is binding for d < d and not binding for d > d. What is the equilibrium output Y with d = d? =
5. Consider an IS-TR model that consists of the following equations: Y = C + Ip C = d+0.5Y Ip 100 100i = i = : max{0, in + (Y — Yn)/Yn} Here d is a parameter reflecting aggregate consumption demand, Ip again denotes planned investment, and i interest rate. Notice that the last equation features zero lower bound on the interest rate. 4% (natural interest rate) and Yn Assume in = 400 (potential output). Determine a cut-off level d such that the zero lower bound is binding for d < d and not binding for d > d. What is the equilibrium output Y with d = d? =
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Could you help me solve this problem? The problem is attached as an image, as it contains characters I cannot type here.
Transcribed Image Text:5. Consider an IS-TR model that consists of the following equations:
Y = C + Ip
C = d+0.5Y
Ip
i = max {0, in + (Y−Yn)/Yn}
Here d is a parameter reflecting aggregate consumption demand, Ip again denotes planned
investment, and i interest rate. Notice that the last equation features zero lower bound on
the interest rate.
= 100 - 100i
4% (natural interest rate) and Yn
Assume in =
400 (potential output). Determine a cut-off
level d such that the zero lower bound is binding for d < d and not binding for d > d. What
is the equilibrium output Y with d = d?
=
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