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- The goal of standing balance is to achieve static equilibrium a.) True b.) FalseConsider the following one-period model. Assume that the consumption good is produced by a linear technology: Y = zND where Y is the output of the con- sumption good, z is the exogenous total factor productivity, ND is the labour hours. Government has to finance its expenditures, G, using a lump-sum tax, T, on the rep- resentative consumer. There is no other tax in the economy. The firm is owned by the representative consumer who is endowed with h hours of time she can allocate between work, NS and leisure, l. Preferences of the representative consumer are: U (c, l) = α ln c + (1 − α) ln l (1) where 0 < α < 1 is a parameter. (a) Write down the definition of a competitive equilibrium for the above economy 1 (b) Solve for the leisure, l, the consumption, c, employment, N, wage rate, w, lump-sum tax, T , and output, Y in equilibrium. (c) Solve for the optimal allocation of leisure, l, the consumption, c, employment, N, output, Y . Contrast these quantities with those…The outbreak of COVID-19 adversely attacks most economies. Some economists argue that the impacts on the macroeconomy mainly come from (i) the reduction in consumption and investment appetite, while others believe that the impacts mainly come from (ii) the immediate destruction of the supply-chain and production. Suppose two quarters since the outbreak of the COVID-19, changes in selected macroeconomic data of Country X can be summarized as below: Last Year This Year Annualized economic growth rate 4% -6% Unemployment rate 5% 8% Inflation rate 2% 5% Assume that argument (ii) is true, briefly discuss one plausible short-run dilemma facing the central bank of Country X.
- The assumption of the Baumol model implies that production in the public sector exhibits constant returns to scale. True or false, and explainSuppose that M = 2000 and that k = 2. What is the price level P at which the economy is in long-run- equilibrium? Plot such an equilibrium on a diagram with P on the vertical axis and Y on the horizontal axis, by distinguishing between the short-run and the long-run equilibrium.C = 100 + 0.75Y I = 25 Find Y* using the following approaches: i.Y=AE ii.Injection = Leakage Find the new equilibrium level of Y if I increased by 25
- Short Answer 2 Consider the market equilibrium model on the regression practice prob- lems where prices and quantities are determined jointly by the intersection of the supply and demand curves. We showed that, in this case, OLS of Q on P does not recover the supply nor demand elasticity. A solution to this endogeneity problem is an instrument. One popular instrument for a firm's price setting decision is the characteristics of products produced by rival firms. Why do you think such an instrument would be relevant? Do you think such an instrument would satisfy the exclusion restriction? Why?Read Kiyotaki (1998). Consider the model in section 2 of the paper. Suppose there is no borrowing constraint (i.e., assume 0 is arbitrarily large). Also assume that a = 1.2, ß = 0.9, y = 1.05, d = 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: Kivotaki, N. (1998). "Credit and Business Cycles." The Japanese Economic Review, volume 49, issue 1, pages 18-35. 1. What is the equilibrium value of the net interest rate in the steady state? (For example, if your answer is 5% in percentage points, then enter 0.05.) 2. Compute the ratio of aggregate borrowing (Bt+1 /rt) to aggregate output (Yt + Y't) in the steady state. (You can assume that this ratio is constant in each period in the steady state.) Notes: Make sure to clarify the notations of variables and parameters in your proof clearly if they are different from those defined in Kiyotaki (1998).Refer to the macroeconomic example, use Cramer's rule to compute Y* AND I*. The equilibrium values of Y and I evaluated at M₀=300, G₀=500, a=100, α=200, b=0.8, t=0.5, β=1, γ=0.4, and δ=1 are Y* =?, I*=?
- Equilibrium-defining equations in an IS-LM model are presented as follows: ? = ? + ? + ?, ? = ?0 + ƒ(? ) − ?(?), ? = ?0 − ℎ(?), ? = ?0, and ?0 = 3? − i(?) where ?0, ?0, ?0, ?0 > 0 are exogenous variables, and ƒ, ?, ℎ, i are continuously differentiable and strictly increasing functions satisfying: ?* = ?0 + ƒ(?* ) − ?(?*) + ?0 − ℎ(?*) + ?0 ?0 = 3?* − i(?*). for the unique equilibrium (?* , ?*). You should also assume that ƒ ′ (?*) ∈ (0, 1) (Why?). Find ??*/? ?0 and ??* /? ?0, and interpret your results.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.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, 3=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, pages 18-35. (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. 1. What is the equilibrium value of the net interest rate in the steady state? Enter your answer in the blank box below. (For example, if your answer is 5% in percentage points, then enter 0.05 in the blank box below.) 2. Compute the ratio of aggregate borrowing (Bt+1/rt) to aggregate output (Yt + Y') in the steady state. (You can assume that…
