Consider the following dynamic IS-LM model. C(t) = 20+ 0.8Y(t-1) Ya(t) = Y(t)- Tx(t) Tx(t) = 5 +0.25Y(t) I(t) = 20 2r(t) G = 50 E (t) = C(t)+1(t) + G AY(t+ 1) = 0.05 [E(t) - Y(t)] Ma(t) = 10+ 0.25Y(t) - 0.5r(t) M₂(t) = 55 Ar(t+1) = 0.8[Ma(t) - M₂(t)] (i) What is the equilibrium level of Y and r? (ii) Show that dynamic IS and LM equations are the recursive equations for Y(t+1) and r(t+1). That is, Y(t + 1) = 86a +(1− a)Y(t) + 0.6aY(t-1) - 2ar(t) r(t + 1) = -45ß +0.25BY(t) + (1 - 0.5B)r(t) where a = 0.05 is the speed of good market adjustment and ß= 0.8 is the speed of money market adjustment. [Hint: Substitute all the relationships in each of the adjustment equations in turn. The algebra can be somewhat tedious but not intellectually difficult.] (iv) Use the spreadsheet this policy change? Suppose the Reserve Bank reduces the money supply (Ms) to 53.6 in period 2, given Y and r are at their equilibrium values in periods 0 and 1. (iii) Use the model set up in the spreadsheet to calculate the new equilibrium output and interest rate. [Hint: The LM curve shifts left so you need to re-calculate the dynamic LM curve] to plot the trajectory of the economy resulting from

Consider the following dynamic IS-LM model. C(t) = 20+ 0.8Y(t-1) Ya(t) = Y(t)- Tx(t) Tx(t) = 5 +0.25Y(t) I(t) = 20 2r(t) G = 50 E (t) = C(t)+1(t) + G AY(t+ 1) = 0.05 [E(t) - Y(t)] Ma(t) = 10+ 0.25Y(t) - 0.5r(t) M₂(t) = 55 Ar(t+1) = 0.8[Ma(t) - M₂(t)] (i) What is the equilibrium level of Y and r? (ii) Show that dynamic IS and LM equations are the recursive equations for Y(t+1) and r(t+1). That is, Y(t + 1) = 86a +(1− a)Y(t) + 0.6aY(t-1) - 2ar(t) r(t + 1) = -45ß +0.25BY(t) + (1 - 0.5B)r(t) where a = 0.05 is the speed of good market adjustment and ß= 0.8 is the speed of money market adjustment. [Hint: Substitute all the relationships in each of the adjustment equations in turn. The algebra can be somewhat tedious but not intellectually difficult.] (iv) Use the spreadsheet this policy change? Suppose the Reserve Bank reduces the money supply (Ms) to 53.6 in period 2, given Y and r are at their equilibrium values in periods 0 and 1. (iii) Use the model set up in the spreadsheet to calculate the new equilibrium output and interest rate. [Hint: The LM curve shifts left so you need to re-calculate the dynamic LM curve] to plot the trajectory of the economy resulting from

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter5: Business And Economic Forecasting

Section: Chapter Questions

Problem 1.6CE: Estimate the double-log (log linear) time trend model for log cruise ship arrivals against log time....

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Read Kiyotaki (1998). Consider the model in section 2 of the paper. Suppose there is no borrowing constraint (i.e., assume is arbitrarily large). Also assume that a = 1.2, B=0.9, y = 1.05, 8 = 0.1, and n = 4. (The notations of variables and parameters follow Kiyotaki (1998). Just in case, & denotes the lower case of Delta in the Greek alphabet.) Reference: Kiyotaki, N. (1998). "Credit and Business Cycles." The Japanese Economic Review, volume 49, issue 1, (You can obtain a free electronic copy of this article through the university library's website. If you do not know how, please ask the librarians.) Answer the following questions. pages 18-35.
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