The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program Introduction: Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

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Answer 1

Question

Chapter 25, Problem 1Q

To determine

The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program

Introduction:

Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

Expert Solution & Answer

Explanation of Solution

The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.

Despite low interest rates, as a result of expansionary or easing of monetary policy, expenditures on consumer durables were less at this period of time and thus the expenditures or spending had to be increased by such incentives. This was because of the failure of the Banking system due to the bank run. The public lost confidence and was in fear of the solvency of the bank and the failure of the financial markets and firms due to the presence of the financial frictions in these financial markets. This gave rise to the problem of moral hazard and asymmetric information at that period of time.

As a result, the government had implemented such rebate programs in order to increase spending in these areas.

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Consider the simple discrete job search model that we studied in class. Only the unemployed can receive one offer per period from F(w) that is a uniform distribution on [0,2]. There is a constant probability of being laid off at the end of each period while employed. Assume that she can get a new offer right away when laid off. We want to understand the reservation wage, WR, in this model. Assume that u(c) = c. The parameters are a discount factor ẞ and an unemployment benefit b.R and show that T is contraction on [0, ∞). Explicitly state any additional assumptions that you may need.(Grading guide line: 5pt for the exact form of T, 10pt for showing contraction, and 5pt for stating correct assumptions.)< (b) Discuss why (a) is useful to understand the reservation wage wд in this economy.< (c) We write WR = WR (b,ẞ,λ) to reveal its dependence on (b,ẞ,λ). Show that 0 ≤ aWR дь OWR дл ≤1 and ≥0. What about ? awR ав State any additional assumptions that you may need.< (d) Briefly explain the…

3. Consider the market for paper. The process of producing paper creates pollution. Assume that the marginal damage function for pollution is given by: MDF = 3E where damages are measured in dollars and E is the level of emissions. Assume further that the function describing the marginal abatement cost of emissions is given by MAC 120-E where benefits are measured in dollars and E is the level of emissions. a. Graph the marginal damage function (MDF) and the marginal abatement cost function (MAC). b. What is the unregulated level of emissions Eu? What is the social welfare of this emissions level? c. Assume an existing emission quota limits emissions to E = 60. Show on the graph why this policy is inefficient. What is the deadweight loss caused by this policy?

show written calculation for B

Answer 2

Question

Chapter 25, Problem 1Q

To determine

The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program

Introduction:

Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

Expert Solution & Answer

Explanation of Solution

The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.

Despite low interest rates, as a result of expansionary or easing of monetary policy, expenditures on consumer durables were less at this period of time and thus the expenditures or spending had to be increased by such incentives. This was because of the failure of the Banking system due to the bank run. The public lost confidence and was in fear of the solvency of the bank and the failure of the financial markets and firms due to the presence of the financial frictions in these financial markets. This gave rise to the problem of moral hazard and asymmetric information at that period of time.

As a result, the government had implemented such rebate programs in order to increase spending in these areas.

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Answer 3

Question

Chapter 25, Problem 1Q

To determine

The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program

Introduction:

Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

Expert Solution & Answer

Explanation of Solution

The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.

Despite low interest rates, as a result of expansionary or easing of monetary policy, expenditures on consumer durables were less at this period of time and thus the expenditures or spending had to be increased by such incentives. This was because of the failure of the Banking system due to the bank run. The public lost confidence and was in fear of the solvency of the bank and the failure of the financial markets and firms due to the presence of the financial frictions in these financial markets. This gave rise to the problem of moral hazard and asymmetric information at that period of time.

As a result, the government had implemented such rebate programs in order to increase spending in these areas.

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Answer 4

Question

Chapter 25, Problem 1Q

To determine

The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program

Introduction:

Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

Expert Solution & Answer

Explanation of Solution

The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.

Despite low interest rates, as a result of expansionary or easing of monetary policy, expenditures on consumer durables were less at this period of time and thus the expenditures or spending had to be increased by such incentives. This was because of the failure of the Banking system due to the bank run. The public lost confidence and was in fear of the solvency of the bank and the failure of the financial markets and firms due to the presence of the financial frictions in these financial markets. This gave rise to the problem of moral hazard and asymmetric information at that period of time.

As a result, the government had implemented such rebate programs in order to increase spending in these areas.

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Answer 5

Chapter 25, Problem 1Q

To determine

The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program

Introduction:

Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

Expert Solution & Answer

Explanation of Solution

The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.

Despite low interest rates, as a result of expansionary or easing of monetary policy, expenditures on consumer durables were less at this period of time and thus the expenditures or spending had to be increased by such incentives. This was because of the failure of the Banking system due to the bank run. The public lost confidence and was in fear of the solvency of the bank and the failure of the financial markets and firms due to the presence of the financial frictions in these financial markets. This gave rise to the problem of moral hazard and asymmetric information at that period of time.

As a result, the government had implemented such rebate programs in order to increase spending in these areas.

Answer 6

Chapter 25, Problem 1Q

To determine

The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program

Introduction:

Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

Expert Solution & Answer

Explanation of Solution

The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.

Despite low interest rates, as a result of expansionary or easing of monetary policy, expenditures on consumer durables were less at this period of time and thus the expenditures or spending had to be increased by such incentives. This was because of the failure of the Banking system due to the bank run. The public lost confidence and was in fear of the solvency of the bank and the failure of the financial markets and firms due to the presence of the financial frictions in these financial markets. This gave rise to the problem of moral hazard and asymmetric information at that period of time.

As a result, the government had implemented such rebate programs in order to increase spending in these areas.

Answer 7

Chapter 25, Problem 1Q

To determine

The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program

Introduction:

Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.

Answer 8

Expert Solution & Answer

Explanation of Solution

The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.

Despite low interest rates, as a result of expansionary or easing of monetary policy, expenditures on consumer durables were less at this period of time and thus the expenditures or spending had to be increased by such incentives. This was because of the failure of the Banking system due to the bank run. The public lost confidence and was in fear of the solvency of the bank and the failure of the financial markets and firms due to the presence of the financial frictions in these financial markets. This gave rise to the problem of moral hazard and asymmetric information at that period of time.

As a result, the government had implemented such rebate programs in order to increase spending in these areas.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Ch. 25 - Prob. 1Q Ch. 25 - Prob. 2Q Ch. 25 - Prob. 3Q Ch. 25 - Prob. 4Q Ch. 25 - Prob. 5Q Ch. 25 - Prob. 6Q Ch. 25 - Prob. 7Q Ch. 25 - Prob. 8Q Ch. 25 - Prob. 9Q Ch. 25 - Prob. 10Q

Explanation of Solution

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Chapter 25 Solutions