In the basic New Keynesian model, suppose that there is an increase in the future marginal product of capital. Explain your results with the aid of diagrams.  Suppose that the central bank keeps the nominal interest rate at its initial value. What will be the effect on current inflation and on output?  Suppose that the economy initially faces an increase in anticipated future inflation and a zero output gap. When the shock occurs, what should the central bank do?

Q: Which of the following best describes the concept of 'rational expectations' in the context of…

A: We need to understand what 'rational expectations' means in macroeconomic theory. This concept…

Q: Within the Keynesian model with both a flexible price and flexible money wage, illustrate…

A: The Keynesian model primarily emphasizes the intervention of the state whenever needed in the hours…

Q: Draw the AS-AD model for the following scenario: The economy is hit by a negative AD shock. Assume…

A: The AS-AD model or model of aggregate demand and aggregate supply represents the AD and AS curves to…

Q: In the Keynesian framework, which of the following events might cause inflation? Group of answer…

A: In the Keynesian framework, any change in the market demand and supply will lead to influence the…

Q: Q10

A: The tax is a unilateral payment made by the people towards the government. The tax is paid on…

Q: the New-Keynesian model with partial sticky prices studied in class to analyse the following shock…

A:

Q: Show using a graph how the following shocks would affect equilibrium output. (Which parameters in…

A: Equilibrium occurs when aggregate demand and aggregate supply are equal. The aggregate demand shock…

Q: How would you expect a decrease in Aggregate Demand to affect both inflation and real GDP? Under…

A: Aggregate Demand (AD) is a macroeconomic concept that refers to the total demand for goods and…

Q: Consider the Keynesian IS-LM model. How would each of the following scenarios affect output,…

A: IS curve shifts if components of aggregate demand change. LM curve shifts only if money demand or…

Q: The Keynesian theory was first introduced in 1936. Why was it presented at that time,  and what…

A: The period in which the world economy faced the biggest depression is 1930s, which is earmarked as…

Q: In the Keynesian framework, for each of the following events which might cause a recession and/or…

A: Note:- Since we can only answer up to three subparts, we'll answer the first three please repost the…

Q: Use the AS/AD model to determine how each of these events will affect the economy. Determine if the…

A: The objective of the question is to determine the position of the economy with respect to the…

Q: Suppose the Phillips curve is and the Aggregate Demand curve is πt = πt-1+Yt + Ot 3t = at — 5(Tt –…

A: πt=πt-1+yt+otyt=at-5(πt-0.02)at=0ot=0

Q: Consider a standard AD-AS model. Suppose that the central bank lost credibility in the sense that…

A: Aggregate supply refers to the cumulative quantity of a firm's production and selling, or the real…

Q: Consider an AD-AS model with AD curve Y−Y* = −ay(n − π*) + ED and AS curve = + 8(Y-Y*) + es with…

A: The total demand associated with all the final goods and services manufactured in an economy is…

Q: Let's assume that in the Asgardian's model of the economy the natural rate of interest is denoted as…

A: Asgardian's model of economy   This is nothing but the theory which takes the society's benefits and…

Q: Prior to the pandemic, economic growth had typically been accompanied by decelerating or declining…

A: ANSWER   The economic growth can be obtained by two ways - Rise in AD or Rise in AS.

Q: A Keynesian economy is described by the following equations. Consumption                       Cd =…

A: Keynesian economy states that AD(aggregate demand) has the potential to affect both output and…

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.