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Undertake a model analysis using the IS-LM model. Using the IS-LM model, illustrate and discuss the impact of the Asian Financial Crisis on interest rates and economic activity (and thus the
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- Japan is experiencing Inflation due to excess demand. Draw a correctly labled AS/AD model representing where the economy is relative to the Natural Rate of UnemploymentConsider a modified aggregate supply function which takes account for the emergence of random business cycle shocks (ce) with Ele] - O in the sense that The loss function is the same as in exercise 1: L- (n - k)* +(m) Notation: €: random shock; E[e,]: expected value of e; b: constant parameter, all other variables see Exercise 1. Having considered the scenario above complete the following tasks: a) Derive the central bank's preferred inflation rate and explain. b) The result in a) reads as T = b(k – j) – %3D Explain the economic intuition of this result. c) Consider a more conservative central banker whose loss function is represented by L = }(y – k)? + }(7.) k) + (m) Apparently, the preferred inflation rate would read eb 1+b TE = 6(k – y) – What can you say about the relationship between B and b? le i larger or smaller than b? Provide an explanation.(a) Using the appropriate graphs, consider the short run impact of a natural disaster that causes a sudden drop in the capital stock using a real intertemporal model with investment (i.e., the simple intertemporal model without money). Explain the impact on wages, interest rates and investment. Does the model provide an unambiguous prediction for the impact of the disaster on hours worked and short-term output? Why or why not? (b) Suppose we add a money market to this model. Is it possible to know the impact of the loss of capital following the natural disaster on the price level? Why or why not? (c) Assume that the economy's production function is Cobb Douglas so per- capita output is y = k", where k is per-capita capital. Using the Solow growth model, explain the impact of the loss of capital on the growth rate of per- capita output in the years following the disaster. (d) Given your answers to (a) and (b), are wars and natural disasters something we should welcome because it might…
- There is an on‐going debate on how unemployment benefits affect the unemployment rate. In the context of the Mortensen‐Pissarides model, unemployment benefits are represented by the variable b. Explain carefully how an increase in b affects each equilibrium condition (Beveridge curve, vacancy supply condition, and wage setting curve.) How is the steady‐state unemployment rate impacted by an increase in b? Use the simulation tool here, https://www.briancjenkins.com/dmp‐model/simulation‐tool.html, to check your answer.Money Surprise Model (25%) Suppose in the Friedman-Lucas money surprise model, there is a negative TFP shock. Neither private sector agents nor the central bank can observe this shock directly. The central bank is committed to interest rate targeting. a- Using labour market diagram, draw the impact of this shock on the labour demand holding the interest rate constant. Provide an explanation. b- Argue that what happened in part (a) will affect the goods market. c- What action the central bank will take? How will this intervention affect the labour supply and goods market? You do not need to draw any diagrams d- Draw diagrams (labour market, goods market, and money market) to illustrate the final stage of the economy after the shock.How do inflationary expectations influence interest rates on mortgage? Please elaborate by expressing your thoughts about your findings in at least
- We try to predict the unemployment (unem) with an AR(1) model and VAR(1) (unemployment and inflation). Figure 1 shows the predication results based on AR(1) and the Figure 2 shows that for VAR(1). The RMSE and MAE for AR(1) are 0.48 and 0.54, while those for VAR(1) are 0.58 and 0.52. Which one of the following statements is correct: 10 civilian unemployment rate, % амми um 1950 O b. O c. O d. 1960 1950 num True unemployment rate before 1996 Confidence interval True unemployment rate after 1996 1970 1980 1948 through 2003 1960 1970 1980 1948 through 2003 True unemployment rate before 1996- Confidence interval True unemployment rate after 1996 1990 AR(1) performs better than VAR(1) because it has smaller RMSE VAR(1) performs better than AR(1) because it has smaller MAE We cannot tell which one performs better Forecast based on AR(1) Confidence interval 1990 2000 2000 We try to predict the unemployment (unem) with an AR(1) model and VAR(1) (unemployment and inflation). Figure 1 shows the…Which one of the following statements is true? In the pre-Keynesian era, prices were assumed not to fully adjust. In the Keynesian model diagram, prices are fixed. GDP is a value of goods and services domestically produced in a country at a given point in time. Say's Law says that demand creates its own production. In the IS/LM model, the interest rate is a function of investment.Suppose policymakers announce their intentions to lower the inflation rate and adopt policy changes to slow nominal GDP growth. Describe, in terms of the SP model, the effects on the economy’s output ratio, unemployment rate, and inflation rate under each of the following cases. (a) The public finds this announcement credible, and policymakers stick to their announced policies. (b) The public finds this announcement credible, but policymakers abandon their announced policies and leave the growth rate of nominal GDP unchanged. (c) The public does not find this announcement credible, but policymakers do stick to the announced policies. (d) The public does not find this announcement credible, and policymakers abandon their announced policies and do not lower the growth rate of nominal GDP.
- Q1: Consider the IS-LM model. Suppose the economy of Economica is initially at the general equilibrium. This year, the weather in Economica is extremely good. a. Explain and show graphically how a good weather shock affects the labor, goods, or the asset market. b. Explain and show graphically how a good weather shock affects the short-run equilibrium. c. Explain and show graphically how a good weather shock affects the general (long-run) equilibrium.QUESTION 1 Which of the following is endogenous in the IS-LM model? Government expenditure The Money Supply The price level real GDP QUESTION 2 Which of the following is exogenous in the IS-LM model? The interest rate National Savings The price level real GDPThe Covid-19 pandemic did not only have effects on demand, but also on supply. In particular, many countries are experiencing surges of inflation, whereas inflation in Switzerland remains relatively low. Consider the AA-DD model and start again from full employment. Analyze the effects from an increase in the foreign price level P∗. For simplicity, assume that the domestic price level P remained constant.
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