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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F948eb364-43d0-4309-b40b-3ba2fae81079%2Fe78ab5ea-13d8-4d38-927b-a04374552b8d%2Fbu6p64p_processed.png&w=3840&q=75)
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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F948eb364-43d0-4309-b40b-3ba2fae81079%2Fe78ab5ea-13d8-4d38-927b-a04374552b8d%2Fg04v4jo_processed.png&w=3840&q=75)
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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