PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
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Chapter 13, Problem 13.5CC
To determine
Graphically, explain the changes in government policies and its effect on expansionary output gap.
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Consider the following demand components:
Consumption described as a following: 100 million USD as an autonomous level of consumption plus 95% of disposable income spends on consumption.
I = 30
G=15
T= 20
(a)Assuming goods market equilibrium, show equilibrium level of output in this economy.
(b)How much output increase, if G increase from 15 to 20, show your calculations.
Write down the Planner’s problem, as well as the Lagrangian. (Hint: There should be two constraints because aggregate consumption of each good cannot exceed the economy’s endowment.) Label the multipliers ϕ1 and ϕ2.
What are the first order conditions of the Planner’s problem? (Hint: There should be 6.).
Find the solution to the Planner’s problem and label the quantities (xpA; ypA) and (xpB; ypB).
If we compare the first order conditions of the Planner’s problem to the first order conditions of a corresponding competitive equilibrium (CE), we can obtain a relationship between ϕx, ϕy, λ, px, and py so that the CE and the Planner’s problem give us the same solution. This is called decentralizing the Planner’s problem.Decentralize the Planner’s problem. (find the equilibrium prices and the value of λ so that the two problems have the same solution.)
Can you relate this to the two welfare theorems?
following the estimation of the income elasticity of demand. During this analysis, utilize the logarithmic transformations of PCE (Personal Consumption Expenditures) and PDI (Personal Disposable Income). Could you please provide the calculated cointegrating coefficient and its interpretation?
> A) The calculated cointegrating coefficient is -0.09, indicating that there is a lagged adjustment of PCE to DPI. Approximately 9 percent of the difference between long-term and short-term PCE is corrected within a quarter.
> B) The calculated cointegrating coefficient is -0.069, indicating that there is a lagged adjustment of PCE to DPI. Approximately 6.9 percent of the difference between long-term and short-term PCE is corrected within a quarter.
> C) The calculated cointegrating coefficient is -0.08, indicating that there is a lagged adjustment of PCE to DPI. Approximately 8 percent of the difference between long-term and short-term PCE is corrected within a quarter.
> D)…
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
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