Aggregate output y at date t is specified as follows,Y₁ = Ñ + — 2 (π₁ − π²) + V₁where the trend level of output is represented by y. v, is a random supply shock with E [v₁] It−1] = 0The central bank's utility function is captured by0 = 30-3-200²() 5)UNotation: y₁: output/production; y: trend level of output; : inflation rate; : expected inflation rate; Ut: supply shock It:information set of the market up to time t; U: utility function; t: time index.In this formulation we assume that the policy variable of the central bank is . IE, the central bank can determine inflation directlywithout error.a)Solve the central banks optimisation problem and derive an optimal level of π for the central bank.b) What would be the implications for the model and the actions of the central bank if the labour marketbecame less rigid, IE. Wages could be adjusted more quickly? (Word Limit: 150 words)Alternatively, the objective function is sometimes written in the general form:L = π² + λ • (y₁ − ỹ − k)²- y -Do you think that this is more realistic? (Word Limit: 150 words)

A utility function is a mathematical expression that measures the satisfaction, happiness, or…

Aggregate output y at date t is specified as follows, 1 Y₁ = ÿ + − (π₁ − π²) + V₁ where the trend level of output is represented by ỹ. v, is a random supply shock with E [v₁|1₁-1] = 0 The central bank's utility function is captured by U = = (₁ -P) - 12 (²₁) ² Notation: y₁: output/production; y: trend level of output; : inflation rate; : expected inflation rate; v₁: supply shock It: information set of the market up to time t; U: utility function; t: time index. In this formulation we assume that the policy variable of the central bank is ₁. IE, the central bank can determine inflation directly without error. a) Solve the central banks optimisation problem and derive an optimal level of T for the central bank. b) What would be the implications for the model and the actions of the central bank if the labour market became less rigid, IE. Wages could be adjusted more quickly? (Word Limit: 150 words) Alternatively, the objective function is sometimes written in the general form: L = x +} • (y - y - k) Do you think that this is more realistic? (Word Limit: 150 words)

Aggregate output y at date t is specified as follows, 1 Y₁ = ÿ + − (π₁ − π²) + V₁ where the trend level of output is represented by ỹ. v, is a random supply shock with E [v₁|1₁-1] = 0 The central bank's utility function is captured by U = = (₁ -P) - 12 (²₁) ² Notation: y₁: output/production; y: trend level of output; : inflation rate; : expected inflation rate; v₁: supply shock It: information set of the market up to time t; U: utility function; t: time index. In this formulation we assume that the policy variable of the central bank is ₁. IE, the central bank can determine inflation directly without error. a) Solve the central banks optimisation problem and derive an optimal level of T for the central bank. b) What would be the implications for the model and the actions of the central bank if the labour market became less rigid, IE. Wages could be adjusted more quickly? (Word Limit: 150 words) Alternatively, the objective function is sometimes written in the general form: L = x +} • (y - y - k) Do you think that this is more realistic? (Word Limit: 150 words)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Exercise 1 Consider the following scenario. Aggregate output y at date t is specified as follows, where the trend level of output is represented by ý. The central bank's loss function is captured by Y₁ = π₁ = n₁ + ý 1 L ² = 2/1 (y₁ − k)² + − (π₁)² - - bлt ba₁ Where a > 0, and where k > 0 is a given parameter reflecting the normal level of aggregate production or the target level of output. Notation: y₁: output/production; : inflation rate; : expected inflation rate; L: loss function; a, b, k: constant parameters; t: time index. Having considered the scenario above complete the following tasks: a) Explain the economic intuition behind the loss function of the central bank. In particular explain what the parameter b represents. (Hint: You may wish to plot the different components of the loss function in a graph to see what it looks like). Also, interpret the quadratic nature of the Loss function. b) Solve the central banks optimisation problem and derive the level of that the central…
Consider a modified aggregate supply function which takes account for the emergence of random business cycle shocks (ce) with Ele] - O in the sense that Ye - R - R ++ 6 The loss function is the same as in exercise 1: L-(n - k)* +(m)? Notation: €: random shock; E[e,]: expected value of e; b: constant parameter, all other variables see Exercise 1. Having considered the scenario above complete the following tasks: a) Derive the central bank's preferred inflation rate and explain.
Please no written by hand solution Consider a scenario of a closed economy in the short run where price level is fixed. Assume that bothtaxes and money supply increase in a way that keep output constant in equilibrium (suppose that themarginal propensity to consume is less than one). Which of the following may result from the policychange?a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
The following economic shock has occurred in this economy, ceteris paribus: Marginal propensity to import has increased Figure 1 W,J W1 E1 J1 Y1 Y (a) Represent this economic shock by drawing an appropriate new function in Figure 1. Mark w2 if the appropriate new function is a withdrawal function, or J2 if the appropriate new function is an injection function. (b) Indicate the following after the occurrence of the above economic shock in Figure 1: (i) the new equilibrium point as point E2, and (ii) the level of new equilibrium output as Y2
The consumption function of the economy of Macro-land is given by ? = 200 + 0.75(? − ?)The investment function is given by ? = 200 − 25? . Government purchases and taxes are both 100. (a) Find the equation of the IS curve (b) The money demand function in Macro-land is given byMd= ? − 100? The nominal money supply M is 1,000 and the price level is 2. Find the equation of theLM curve (c) Find the interest rate and income for which the goods and services and money marketsare simultaneously in equilibrium. (d) Suppose the government purchases are raised from 100 to 150. What are the newequilibrium interest rate and income? (e) Suppose that the money supply is raised from 1,000 to 1,200. What are the newequilibrium interest rate and national income? (f) How will fiscal expansion in the country (Macro-land) affect national income,employment, interest rate, price level and real money balance under the Keynesianaggregate supply condition? NB: Kindly answer all questions
Exercise 1 Consider the following scenario. Aggregate output y at date t is specified as follows, Yt = Tt – T +ỹ where the trend level of output is represented by y. The central bank's loss function is captured by L 2 (y: – k)² +(T) 2 Where b> 0, and where k > 0 is a given parameter reflecting the normal level of aggregate production or the target level of output. The central bank takes the public's expectations as given. The society loss function is the same as the central bank loss function. Notation: y;: output/production; T: inflation rate; n: expected inflation rate; L: loss function; b, k: constant parameters; t: time index.
Parts d-e please a) There is an inflationary gap of $500 m in the full SR model, IS-LM; and I=450 + 0.25Y-1500i; C=350+.65 YD. Calculate the required to policy and show what will happen, cet. par., in the appropriate graph. b) Assume the economy is at YFE. In the full SR model, IS-LM, show what will happen if firm confidence falls, cet. par. What will happen to the components of the goods market? Use directional arrows to show and explain all these changes. Who should do what if FE is the goal of policy? c) We are in eqm in the full SR model, IS-LM. Following a single shock (so that only one curve shifts), cet. par., we see that the nominal interest rate has fallen and Y has risen then we know with certainty that the Fed has engaged in expansionary policy. True, False, or Uncertain? Show graph in i-Y space and explain fully. d) In the full SR model, IS-LM, we know that if to falls, cet. par., then the real Money Supply will increase. True, False, Uncertain? Explain. Show…
Discuss in detail the limitations of the IS-LM model. Why is it unrealistic for todays economies
Consider a modified aggregate supply function which takes account for the emergence of random business cycle shocks (ce) with Ele] - O in the sense that The loss function is the same as in exercise 1: L- (n - k)* +(m) Notation: €: random shock; E[e,]: expected value of e; b: constant parameter, all other variables see Exercise 1. Having considered the scenario above complete the following tasks: a) Derive the central bank's preferred inflation rate and explain. b) The result in a) reads as T = b(k – j) – %3D Explain the economic intuition of this result. c) Consider a more conservative central banker whose loss function is represented by L = }(y – k)? + }(7.) k) + (m) Apparently, the preferred inflation rate would read eb 1+b TE = 6(k – y) – What can you say about the relationship between B and b? le i larger or smaller than b? Provide an explanation.
Assume a Keynesian model of a small open economy. The world interest rate is given rw = 0.05. Money demand is given by the equation: Md = 20+0.5Y –40rw. Money supply is 800. The marginal propensity of consumption is 0.8. (a) Find the equation for the LM curve. (b) Find Y . (c) Assume the economy has flexible exchange rates and prices. Suppose the government were to cut spending by 5. i. How much and in what direction does the IS shift? Be precise. ii. What is the new value of Y ? 1/3 Due on Monday, 11/16 @ 9:00 a.m. iii. Has the exchange rate appreciated, depreciated, or stayed the same? (d) Assume the economy has fixed exchange rates and prices. Suppose the government were to cut spending by 5. i. How much and in what direction does the IS shift? Be precise. ii. What is the new value of Y ? iii. What is the new value of the Money supply?
QUESTION 8 In the model: Y=v - B(r,-r)- we, + e T,- m + a(v, -v;)– yAe, + e" !! What is the expected short-run effect of a positive demand shock (6, > 0) on output? O positive O negative O neutral O ambiguous
Hi I want the answer as soon as possible Given the following informations Consumption(C)= 800+0.9Y Investment( I)=8000-800r Money Supply(Ms)=28500 Demand for Money(Md)=0.75Y-1500r Find an equation for LM schedule