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In the above, covid stands for the extent of the spread of the covid-19 pandemic in the population, which takes different values as specified below. In addition, Y stands for output, YD for disposable income, Z planned expenditure, N labour, Nd labour demand, Ns labour supply, W nominal wage, P level of prices, C consumption, I investment, NX net exports, G government expenditure, T taxes net of transfers, L real money demand, M nominal money supply, e nominal exchange rate, i nominal interest rate, and if foreign nominal interest rate.

In the above, covid stands for the extent of the spread of the covid-19 pandemic in the population, which takes different values as specified below. In addition, Y stands for output, YD for disposable income, Z planned expenditure, N labour, Nd labour demand, Ns labour supply, W nominal wage, P level of prices, C consumption, I investment, NX net exports, G government expenditure, T taxes net of transfers, L real money demand, M nominal money supply, e nominal exchange rate, i nominal interest rate, and if foreign nominal interest rate.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In the above, covid stands for the extent of the spread of the covid-19 pandemic in the population, which takes different values as specified below. In addition, Y stands for output, YD for disposable income, Z planned expenditure, N labour, Nd labour demand, Ns labour supply, W nominal wage, P level of prices, C consumption, I investment, NX net exports, G government expenditure, T taxes net of transfers, L real money demand, M nominal money supply, e nominal exchange rate, i nominal interest rate, and if foreign nominal interest rate.

Assume that, in all subquestions below, the short side of the market determines equilibrium outcomes. Using the above model and rounding to 3 decimal places, answer the following questions: (a) Let covid = 0. If the price level P and the nominal wage W are flexible, but the exchange rate is fixed at e = ē = 2, what is the equilibrium value of Y*? (b) Let covid = 0. If the exchange rate continues fixed at e = ē = 2, but now the price level P is also fixed at P = P = 1, what is the equilibrium value of Y*? (c) Let covid = 0. If the price level P continues fixed at P = P = 1, but the exchange rate e is now flexible and the money supply is fixed at M = M = 175, what is the equilibrium value of Y*? (d) Let covid = 0.25, and replace equation (3) (labour supply) with N, = 0.55 (due to a permanent decrease in labour disutility as a result of remote working). How do your answers to the above subquestions (a), (b) and (c) change? (e) Explain briefly the effect of covid-19 and the implicit government response on this economy.
Transcribed Image Text:Assume that, in all subquestions below, the short side of the market determines equilibrium outcomes. Using the above model and rounding to 3 decimal places, answer the following questions: (a) Let covid = 0. If the price level P and the nominal wage W are flexible, but the exchange rate is fixed at e = ē = 2, what is the equilibrium value of Y*? (b) Let covid = 0. If the exchange rate continues fixed at e = ē = 2, but now the price level P is also fixed at P = P = 1, what is the equilibrium value of Y*? (c) Let covid = 0. If the price level P continues fixed at P = P = 1, but the exchange rate e is now flexible and the money supply is fixed at M = M = 175, what is the equilibrium value of Y*? (d) Let covid = 0.25, and replace equation (3) (labour supply) with N, = 0.55 (due to a permanent decrease in labour disutility as a result of remote working). How do your answers to the above subquestions (a), (b) and (c) change? (e) Explain briefly the effect of covid-19 and the implicit government response on this economy.
Consider the following model of a small open economy: Production and Labour Market: Y = 40N – N (1) Production function Na = 40 – (2) Labour demand N, = 0.5% (3) Labour supply Na = N, = N (4) Labour market equilibrium Goods Market: Z = C+I+G+NX (5) Planned aggregate expenditure C = 200 + (0.5 – covid) Yp (6) Consumption function I = 50 – 20covid + 0.25Y – 100i (7) Planned investment G = 25 (8) Government expenditure Yp = Y – T (9) Disposable income T = 25 + 0.5Y – 20covid (10) Tax function NX = 21 – 0.25Y +2$ (11) Net Exports function Y = Z (12) Equilibrium Condition Money Market: L = 75+ 20covid + 0.25Y – 100i (13) Real money demand (14) Real money supply P L= ¥ (15) Money market equilibrium Balance of Payments: i = ij = 0.05 (16) BP=0 locus
Transcribed Image Text:Consider the following model of a small open economy: Production and Labour Market: Y = 40N – N (1) Production function Na = 40 – (2) Labour demand N, = 0.5% (3) Labour supply Na = N, = N (4) Labour market equilibrium Goods Market: Z = C+I+G+NX (5) Planned aggregate expenditure C = 200 + (0.5 – covid) Yp (6) Consumption function I = 50 – 20covid + 0.25Y – 100i (7) Planned investment G = 25 (8) Government expenditure Yp = Y – T (9) Disposable income T = 25 + 0.5Y – 20covid (10) Tax function NX = 21 – 0.25Y +2$ (11) Net Exports function Y = Z (12) Equilibrium Condition Money Market: L = 75+ 20covid + 0.25Y – 100i (13) Real money demand (14) Real money supply P L= ¥ (15) Money market equilibrium Balance of Payments: i = ij = 0.05 (16) BP=0 locus
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