using the dornbusch model Use the set of graphs with IS-LM to explain in a simple manner what happens if the central bank worked by setting the interest rate directly. What would happen if it (e.g.) reduced temporarily the interest rate, so that r

using the dornbusch model Use the set of graphs with IS-LM to explain in a simple manner what happens if the central bank worked by setting the interest rate directly. What would happen if it (e.g.) reduced temporarily the interest rate, so that r

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section15.1: Tansmission Mechanism

Problem 1ST

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using the dornbusch model
Use the set of graphs with IS-LM to explain in a simple manner what happens if the central bank
worked by setting the interest rate directly. What would happen if it (e.g.) reduced temporarily the
interest rate, so that r<r* temporarily?

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In the model SIM of chapter 3 of the book of Godley, Wynne, and Marc Lavoie. 2012. Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. 2nd ed. 2012 edition., starting from a stationary state simulate the effect of an increase in government expenditure under four variations of the model: a model where expected disposable income is always constant and equal to 20: Y De = 20 Discuss the trajectory of output from the original stationary state to the new one.
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