Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M$/P Time t Time t 1 4 1 3 4 6. Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t = 1, and interpret time t = 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements: (a) Can the shock be a permanent change, positive or negative, in public expenditures G? Motivate your answer. (b) Can the shock be a permanent change, positive or negative, in nominal money supply M ? Motivate your answer. (c) Can the shock be a permanent change, positive or negative, in firms productivity 1 ? Motivate your answer. (d) Can the shock be of a permanent change, positive or negative, in the slope of labour supply B? Motivate your answer. Add any further considerations that you think can be relevant to this exercise.

Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M$/P Time t Time t 1 4 1 3 4 6. Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t = 1, and interpret time t = 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements: (a) Can the shock be a permanent change, positive or negative, in public expenditures G? Motivate your answer. (b) Can the shock be a permanent change, positive or negative, in nominal money supply M ? Motivate your answer. (c) Can the shock be a permanent change, positive or negative, in firms productivity 1 ? Motivate your answer. (d) Can the shock be of a permanent change, positive or negative, in the slope of labour supply B? Motivate your answer. Add any further considerations that you think can be relevant to this exercise.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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