ECON MACRO
ECON MACRO
5th Edition
ISBN: 9781337000529
Author: William A. McEachern
Publisher: Cengage Learning
Question
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Chapter 15, Problem 2.3P

Sub-part

A

To determine

Effect on aggregate demand when the investment demand becomes less sensitive to the changes in the interest rate.

Sub-Part

B

To determine

Effect on aggregate demand when the marginal propensity to consume rises.

Sub-Part

C

To determine

Effect on aggregate demand when the money multiplier rises.

Sub-Part

D

To determine

Effect on aggregate demand when bank decides to hold additional excess reserves.

Sub-Part

E

To determine

Effect on aggregate demand when the demand for money becomes more sensitive to the changes in the interest rate.

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Suppose there are two firms 1 and 2, whose abatement costs are given by c₁ (e₁) and C2 (е2), where e denotes emissions and subscripts denote the firm. We assume that c{(e) 0 for i = 1,2 and for any level of emission e we have c₁'(e) # c₂' (e). Furthermore, assume the two firms make different contributions towards pollution concentration in a nearby river captured by the transfer coefficients ε₁ and 2 such that for any level of emission e we have C₂'(e) # The regulator does not know the resulting C₁'(e) Τι environmental damages. Using an analytical approach explain carefully how the regulator may limit the concentration of pollution using (i) a Pigouvian tax scheme and (ii) uniform emissions standards. Discuss the cost-effectiveness of both approaches to control pollution.
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