1. Show the consequences of a technological advance (A increases) using the “classical” ISLM model and AS/AD model.
2. Show the consequences of a decline in labor utilization using “classical” ISLM and AS/AD model.
3.Using misperception theory and AS/AD model show the consequences of an:
· Expected increase in money supply equal to 10%
· Unexpected increase in money supply equal to 5%
· Decrease in money supply equal to 10%, when people expected it to decline by 5%
· Show the effects of an increase in M equal to 10% assuming the Keynesian hypothesis of sticky nominal wages. Does it matter whether it was expected or unexpected
Is it true that money is neutral?
4A. Using the real business cycle approach, analyze the effects of a permanent increase in govt. purchases = 100 (which is financed by an equal lump-sum taxation) on:
· Labor market (compare permanent and temporary increase in G)
· Classical ISLM model
4B. As a result of such policy, consumers decrease consumption by 100. Use the classical ISLM model to show the effects
5. Consider a business cycle theory that combines classical ISLM with the assumption that temporary changes in G are the main source of cyclical fluctuations. How well does this explain the observed cyclical behavior of the following variables:
· Employment
· The real wage
· Average labor prod
· Investment
· Price level
6. An economy is described as follows:
C = 600 + 0,5(Y-T) - 50r
I = 450-50r
L = 0,5Y - 100i (real money demand)
Y = 2210 (full employment)
Expected inflation = 0,05
G = T = 150
M = 4320
Derive AD equation; find equilibrium values of output, real interest rate and price level.
Assume that G rises to 190. Is this increase in G neutral?
7. An economy is described as follows:
AD: Y = 300 + 30(M/P)
AS:Y = Ypotential + 10(P - PE)
where: PE = expected prices and Ypotential full employment (potential) value of GDP
Ypotential = 500, M = 400; PE = 60
Find long-run equilibrium values of P and Y.
Find equilibrium values of Y and P when there is an unanticipated increase in M to 700. Repeat for anticipated increase in M to 700
pela_191