Consider the Keynesian sticky wage model. Consider a temporary increase in current produc- tivity, z. 1. Using graphs, show the effect of higher z on output, employment, prices, the real interest rate, and the real wage. 2. Consider the effect of the same shock in the monetary intertemporal model. Using graphs, show the effect of higher z on output, employment, prices, the real interest rate, and the real wage. 3. Compare the change in output and prices in the two models. 4. Explain and show graphically how, in the Keynesian model, monetary policy could be used to induce a change in output equivalent to that in the monetary intertemporal model.

Consider the Keynesian sticky wage model. Consider a temporary increase in current produc- tivity, z. 1. Using graphs, show the effect of higher z on output, employment, prices, the real interest rate, and the real wage. 2. Consider the effect of the same shock in the monetary intertemporal model. Using graphs, show the effect of higher z on output, employment, prices, the real interest rate, and the real wage. 3. Compare the change in output and prices in the two models. 4. Explain and show graphically how, in the Keynesian model, monetary policy could be used to induce a change in output equivalent to that in the monetary intertemporal model.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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