Complete the following questions using the 6-quadrant diagram showing the effects of each shock below. For each shock explain and show - Explain how the shock affects the model (what changes?) Then show - What happens to output (real GDP) - What happens to the Price level P - What happens to real wages (w/P) - What happens to real Capital payments (R/P) Who is better or worse off after the shock: labor, capital owners, or both and explain your reasoning. c) A sudden pandemic occurs in an economy that results in a large loss of life. d) A large increase in the level of taxation in the economy. e) An increase in the money supply in the economy. Do any of the shocks above illustrate the classical dichotomy (that nominal changes only have nominal but not real effects)? If so, which ones?
Complete the following questions using the 6-quadrant diagram showing the effects of each shock
below. For each shock explain and show
- Explain how the shock affects the model (what changes?)
Then show
- What happens to output (real
- What happens to the
- What happens to real wages (w/P)
- What happens to real Capital payments (R/P)
Who is better or worse off after the shock: labor, capital owners, or both and explain your
reasoning.
c) A sudden pandemic occurs in an economy that results in a large loss of life.
d) A large increase in the level of
e) An increase in the money supply in the economy.
Do any of the shocks above illustrate the classical dichotomy (that nominal changes only have nominal
but not real effects)? If so, which ones?
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