3. Suppose that the economy is well described by the New-Keynesian withpartial sticky prices. Assume that the ZLB on nominal interest rate is binding.In your answer below, keep in mind the consumers' and firms' optimaldecisions that give rise to the model and explain how and why agents'decisions change.a) Bank runs generate a large increase in spreads ft in the economy. What arethe effects on aggregate outcomes (Y, P, r)? How does it compare to thecase where the ZLB is not binding? Use diagram to support your answerb) The Central bank, as lender of last resort, decides to inject large amountsof money into financial institutions. Analyse the transmission mechanism ofthis policy action as well as its effects on output and price level.

Despite the fact that central banks have existed since ancient times, the modern notion of a…

3. Suppose that the economy is well described by the New-Keynesian with partial sticky prices. Assume that the ZLB on nominal interest rate is binding. In your answer below, keep in mind the consumers' and firms' optimal decisions that give rise to the model and explain how and why agents' decisions change. What are a) Bank runs generate a large increase in spreads ft in the economy. the effects on aggregate outcomes (Y, P, r)? How does it compare to the case where the ZLB is not binding? Use diagram to support your answer b) The Central bank, as lender of last resort, decides to inject large amounts of money into financial institutions. Analyse the transmission mechanism of this policy action as well as its effects on output and price level.

3. Suppose that the economy is well described by the New-Keynesian with partial sticky prices. Assume that the ZLB on nominal interest rate is binding. In your answer below, keep in mind the consumers' and firms' optimal decisions that give rise to the model and explain how and why agents' decisions change. What are a) Bank runs generate a large increase in spreads ft in the economy. the effects on aggregate outcomes (Y, P, r)? How does it compare to the case where the ZLB is not binding? Use diagram to support your answer b) The Central bank, as lender of last resort, decides to inject large amounts of money into financial institutions. Analyse the transmission mechanism of this policy action as well as its effects on output and price level.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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