Y FK = F(K.N) 0,FN>0, FKK-FNN <0, FKN> 0 FN (K, N) N" (w/p), N'>0 N* N' => N = I = I(r-n), I' <0 C = C(Y-T-SK,r-z, M+B), 0 0 C+I+G+6K Y M/p= m, < 0,my > 0 where Y is real GDP, K is the capital stock, N is employment, w is the money wage, N is the supply of labor, p is the price level, r is the interest rate, is the anticipated inflation rate, I is investment, C is consumption, G is government expenditure, T is net taxes. The endogenous variables are Y, N, w/p. r. p, C and I. The exogenous variables are M, B, K, G.T.. Let dk=0, and M+B>0 i.e. public has positive net holdings of government assets. Assume the open-market operations constraint dM+dB = 0, so any change in the nominal money supply is engineered through an open market operation. In this economy, show that a change in the nominal money supply eventually has effects on the real variables of the economy (i.e. nomey is not a veil in this system). In your answer, you must show all your arguments analytically and also describe the full mechanisms in words (Hint: start with showing conditions of stability).

Y FK = F(K.N) 0,FN>0, FKK-FNN <0, FKN> 0 FN (K, N) N" (w/p), N'>0 N* N' => N = I = I(r-n), I' <0 C = C(Y-T-SK,r-z, M+B), 0 0 C+I+G+6K Y M/p= m, < 0,my > 0 where Y is real GDP, K is the capital stock, N is employment, w is the money wage, N is the supply of labor, p is the price level, r is the interest rate, is the anticipated inflation rate, I is investment, C is consumption, G is government expenditure, T is net taxes. The endogenous variables are Y, N, w/p. r. p, C and I. The exogenous variables are M, B, K, G.T.. Let dk=0, and M+B>0 i.e. public has positive net holdings of government assets. Assume the open-market operations constraint dM+dB = 0, so any change in the nominal money supply is engineered through an open market operation. In this economy, show that a change in the nominal money supply eventually has effects on the real variables of the economy (i.e. nomey is not a veil in this system). In your answer, you must show all your arguments analytically and also describe the full mechanisms in words (Hint: start with showing conditions of stability).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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