Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 23, Problem 3PA
Subpart (a):
To determine
Effect of government action on level of investment.
Subpart (b):
To determine
Explain whether government have any incentive to renege on its policy.
Subpart (c):
To determine
Explain what the government can do to increase the credibility of announced policy change.
Subpart (d):
To determine
Explain the reason for the situation is similar to the problem of time inconsistency.
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Consider a country whose economic structure matches the assumptions of the classical model. After reading a recent best-seller documenting a growing population of low-income elderly people who were ill prepared for retirement, most residents of this country decide to increase their saving at any given interest rate. Explain whether or how this could affect the following:
a. The current equilibrium interest rate
b. Current equilibrium real GDP
c. Current equilibrium employment
d. Current equilibrium investment
e. Future equilibrium real GDP
Suppose you are the president of a hypothetical economy. You have to fix healthcare and run the automobile industry . But Swine flu is breaking all over.
a) We know that the economy also suffers from sour expectations about future productivity. Represent in a neatly drawn ISLM figure that, all else equal, those expectations, in conjunction with the flu outbreak described in part A above, could result in a decline in GDP and a decline in real interest rates without any change in the price level.
b) Why do prices not rise in the scenario described in part A?
Please use the AD-AS model to analyze the effects of monetary policy and fiscal policy on economic outcome in an open economy:
a. Please show graphically the shifting of the AD curve after the Fed conducts an expansionary monetary policy in a closed economy (A closed economy means there is no international trade.). How do the price level and the real GDP change?
b. Suppose the economy becomes an open economy. Please revise the result that you get in part (a). Please explain how you get the new result using the AD-AS model.
c. Please show graphically the shifting of the AD curve after the federal government conducts an expansionary fiscal policy in a closed economy. Please show the crowding-out effect. How do the price level and the real GDP change?
d. Suppose the economy becomes an open economy. Please revise the result that you get in part (c). Please explain how you get the new result based on the AD-AS model.
Chapter 23 Solutions
Principles of Macroeconomics (MindTap Course List)
Ch. 23.1 - Prob. 1QQCh. 23.2 - Prob. 2QQCh. 23.3 - Prob. 3QQCh. 23.4 - Prob. 4QQCh. 23.5 - Prob. 5QQCh. 23.6 - Prob. 6QQCh. 23 - Prob. 1CQQCh. 23 - Prob. 2CQQCh. 23 - Prob. 3CQQCh. 23 - Prob. 4CQQ
Ch. 23 - Prob. 5CQQCh. 23 - Prob. 6CQQCh. 23 - Prob. 1QRCh. 23 - Prob. 2QRCh. 23 - Prob. 3QRCh. 23 - Prob. 4QRCh. 23 - Prob. 5QRCh. 23 - Prob. 6QRCh. 23 - Prob. 7QRCh. 23 - Prob. 8QRCh. 23 - Prob. 9QRCh. 23 - Prob. 10QRCh. 23 - Prob. 1PACh. 23 - Prob. 2PACh. 23 - Prob. 3PACh. 23 - Prob. 4PACh. 23 - Prob. 5PACh. 23 - Prob. 6PACh. 23 - Prob. 7PACh. 23 - Prob. 8PA
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