After the specified shock, which variable's or variables' time path/paths is/are represented by the following impulse response function? shock Real output following a positive permanent supply shock Inflation following an inflation shock O Real output and real interest rate following an inflation shock time O Real interest rate following a negative permanent demand shock None of the above O No Answer
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- Consider a modified aggregate supply function which takes account for the emergence of random business cycle shocks (ce) with Ele] - O in the sense that Ye - R - R ++ 6 The loss function is the same as in exercise 1: L-(n - k)* +(m)? Notation: €: random shock; E[e,]: expected value of e; b: constant parameter, all other variables see Exercise 1. Having considered the scenario above complete the following tasks: a) Derive the central bank's preferred inflation rate and explain.How does a credible nominal anchor help improve theeconomic outcomes that result from a positive aggregatedemand shock? How does a credible nominal anchorhelp if a negative aggregate supply shock occurs? Usegraphs of aggregate supply and demand to demonstrate.Please no written by hand solution Consider a scenario of a closed economy in the short run where price level is fixed. Assume that bothtaxes and money supply increase in a way that keep output constant in equilibrium (suppose that themarginal propensity to consume is less than one). Which of the following may result from the policychange?a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
- Suppose in the real business cycle model that there is a simultaneous temporary increase inboth current government spending and in the current money supply. Draw diagrams for thelabour, goods and money market, and the production function. Determine the equilibriumeffects of these two shocks occurring simultaneously on employment, output, consumption,investment, money, real wages, the real interest rate, and the price level. Provide a detailedeconomic analysis explaining your results with the aid of the diagrams.Specific subject - Macroeconomic Analyse the case of a negative supply shock caused by an increase in oil prices and compare with the shock caused by the Covid pandemic. What would be the similarities and differences between the two shocks? What would be the effect of an expansionary economic policy (increase in aggregate demand)? Graph What measures or government intervention would be most appropriate to deal with both types of shocks? Graph Compare the adjustment in both cases with and without government intervention. GraphDetermine the effect on aggregate demand/ Short Run Agrregate supply of each of the followingevents. Explain whether it represents a movement along the aggregate demand/ Short run Aggregatesupply curve (up or down) or a shift of the curve (leftward or rightward).a) News of a worse-than-expected job market next yearb) A rise in the consumer price index (CPI) leads producers to increase output.c) A rise in legally mandated retirement benefits paid to workers leads producers to reduceoutput.d) As a result of an increase in the value of the dollar in relation to other currencies, Americanproducers now pay less in dollar terms for foreign steel, a major commodity used in production.e) An increase in the quantity of money by the Federal Reserve increases the quantity of moneythat people wish to lend, lowering interest rates.f) Greater union activity leads to higher nominal wages.g) A fall in the aggregate price level increases the purchasing power of households’ and firms’money holdings. As…
- Questron 3 Suppose the nominal interest rate is currently 24 per cent and expected inflation is 16 per cent. IF the expected inflastion rate doubles to 3.2 per cent, wtich of the foloving would be an implication of the Fisher effect? O The real interest ate talls by 1.6 per cent O The nominal interant rate doubies to 48 per cent O The nominal interast rate rises n 5.6 per cent O The nominal incerest rate des co 4.0 por centConsider a Keynesian business cycle theory that combines the IS-LM model with the assumption that investors become infected with optimism. Does the theory explain observed cyclical behavior of each of the following variables? Еmployrment O A. is procydlical in the data, but is countercydlical in the model. Hence the model does not match this business cycle fact. O B. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business cycle fact. OC. is countercyclical in the data, and is countercyclical in the model. Hence the model matches this business cycle fact. OD. is procyclical in the data, and is procyclical in the model. Hence the model matches this business cycle fact. Average labor productivity O A. is procyclical in the data, but is countercyclical in the model. Hence the model does not match this business cycle fact. OB. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business…Consider the AD/AS model below with a constant rate of inflation. No exogenous AD or AS shocks are occurring. Price Level P3 2 Po 0 FIGURE 29-1 Y" E3 E2 E1 Eo Real GDP AS3 AS2 AS1 ASO AD3 AD2 AD1 ADO Select one: O a an annual shift upward of the AS curve by 3%. b. an annual increase in the inflation rate of 3%. Oc. an annual shift upward of the AD curve by 3%. d. an annual increase in the equilibrium price level of 3%. Oe. Not applicable. The diagram shows the price level, not the inflation Refer to Figure 29-1. A constant rate of inflation of 3% is portrayed in an AD/AS diagram like this one as
- 10. Which of the following are reasons why the short-run Aggregate Supply curve shown in the right-hand diagrams may be vertical? a) The economy at this level of real GDP would be operating beyond the full-employmetn level. b) Inflationary expectations have set-in so, the owners of resources are acting on these inflationary expectations and insisting on higher resource prices in anticipation of future products price inflation. c) Short-run Aggregate Suply in the Classical model is always constant. d) All the above e) Only (a) and (b) are true. f) None of the above.Consider a closed economy that begins with her long run equilibrium.Recently, households become more pessimistic. They tend to save more to getprepared.Adopt the sticky-wage model of the short run aggregate supply to explain theshort run effects of this shock. Also, explain the gradual long run adjustmentsover time using the sticky-wage model of the short run aggregate supply. Assume the policymakers do not accommodate the shock.2. What is the eqution and shape of the modem aggregate supply curve according to imperfect infomation model? Using the equation of Aggregate Supply (AS) derive the equation of Expectation augmented Phillips curve and explain causes of inflation in tems of it. How does expectation augmented Phillips curve explain Stagflation?