Answered: Consider the log-linear New Keynesian…

Consider the log-linear New Keynesian IS Curve 1 ýt = E -- Ele) a) Discuss the New-Keynesian IS Curve with focus on the underlying economic mechanisms b) What does parameter o represent?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2
Consider the log-linear New Keynesian IS Curve
Î₁ = Erŷt+1 − − († — Erñt+1)
a)
Discuss the New-Keynesian IS Curve with focus on the underlying economic mechanisms
b)
What does parameter o represent?
1
c)
How would an increase in future expected real interest rate (î₁ = ît − E₁î₁+1) affect the
current level of output? Explain

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Step 1: Define the log-linear New Keynesian IS curve

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Step 2: A) Discuss the curve from the view of underlying economic mechanisms

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Step 3: B) Define the parameter

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Step 4: C) Examine the effect on the current level of output

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