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- A. Illustrate and explain the impact that changes in the money supply have in the economy through a neoclassical perspective. B. Illustrate and explain the impact that changes in the money supply have in the economy through a Keynesian perspective.4.What is meant by the term neoclassical counterrevo-lution? What are its principal arguments, and how valid do you think they are? Explain your answer.If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to teal GDP?
- Economists from all theoretical persuasions criticized the American Recovery and Reinvestment Act. The Stimulus Package was arguably a Keynesian measure so why would a Keynesian economist be critical of it? Why would neoclassical economists be critical?Consumption, ? = 0.8?? + 80,Tax, ? = 0.3? + 10Investment, ? = −30r + 800Money supply, ?s = 8000 andMoney demands: ?1 = 0.2?, ?2 = −20? + 4000i. Determine the values of national income, ?, and interest rate, ?, on the assumption thatboth the commodity and the money markets are in equilibrium.ii. Identify the autonomous components and induced components among the aboveequations. Explain the reasons why the components have been identified as autonomousor induced.explain why changes in consumption are unpredictable if consumer obey the permanent income hypothesis and have rational expectations? explain in detail. Book Mankiw chapter 14
- 6. Classify each of the following statements as positive ornormative. Explain.a. Society faces a short-run trade-off between inflationand unemployment.b. A reduction in the rate of money growth willreduce the rate of inflation.c. The Federal Reserve should reduce the rate ofmoney growth.d. Society ought to require welfare recipients to lookfor jobs.e. Lower tax rates encourage more work and moresaving.1. Supply and demand in the neoclassical economy Consider an economy in which the consumption, investment and production functions are as follows. C = 90 + 0.7(Y − T) I = 250 − 20r F(K, L) = AK0.5L0.5 The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate. Suppose now government spending increases to G=300 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables.Pick 1 answer. 4. Summarize the Neoclassical model: A. The neoclassical model is built on the importance of aggregate demand as a cause of business cycles and a degree of wage and price rigidity, and thus does a sound job of explaining many recessions and why cyclical unemplovment rises and falls. B. The neoclassical model emphasizes aggregate supply by focusing on the underlying determinants of output and employment in markets, and thus tends to put more emphasis on economic growth and how labor markets work c. The neoclassical model emphasizes aggregate demand by focusing on the underlying determinants of output and employment in markets, but tends to but less emphasis on economic growth and how labor markets work. 9.
- 2.1 “Oil prices are increasing, again, casting a shadow over the economy, driving upinflation and eroding consumer confidence.” (The New York Times, 2022)a. According to this News, how can we use a concept of cost-push to explain thissituation? You may apply a concept of demand and supply to make it clearly.3)Show and explain the effects of an increase in aggregate demand in the long-run and short-run by using AD–AScurves.2)Show and explain by using a graph, what will happen to the price level and real GDP if the quantity of moneyincreases and the increase is not anticipated; that is, the price level is not expected to change.1)By using aggregate demand (AD) and aggregate supply (AS) curves, show and explain the effects of ananticipated increase in money supply on macroeconomic equilibrium according to Rational ExpectationsHypothesis.Time remaining: 00 :09 :06 Economics If there is an inflationary gap, what should the Fed do? Explain, provide name, and show in i-M space. Consider the following macroeconomy, with fixed prices (all amounts are in millions of $): YFE = 7000 C = 40 + 0.9 YD I = 500 G = 250 T = 40 a. Calculate eqm Y in this model and then graph it in the Keynesian-cross diagram. Indicate and provide the name and size of the gap, if any. b. Prove that the appropriate relationship between I and various types of Savings holds at eqm. c. What two different policies could Congress enact? You must calculate the exact changes in the appropriate variables and provide the appropriate name(s) for the(se) policies. Graph each of these policies in the Keynesian-cross diagram. Show what your policies would do, if anything, in the money-market diagram, (in i- M space) cet. par. Indicate the initial disequilibrium and explain what will happen and why. d. Go back to the original eqm in part a. Now…