Assume that nominal wages are sticky and that firms determine the level of employment in the short run. Use an AD/AS diagram to model the goods market, a labor demand/supply diagram to model the labor market, and the loanable funds diagram to model the financial market. Assume that in addition to the real interest, consumption depends on current disposable income and the present value of future disposable income. Speculate what would happen in the current time period to equilibrium output, prices, real interest rates, savings (and consumption) and investment expenditures, real wages and employment as a result of: (Please include diagrams) a.An increase in the money supply .b.Government spending increases as a result of an increase in military expenditures. Assume that government budget remains balanced. c.A permanent change in technology that results in greater output for the same amount of inputs and that increases the marginal products of labor and capital. d.There was a temporary increase in the price of oil. Why does an increase in price of oil pose a dilemma for the monetary authority (Fed)?
Assume that nominal wages are sticky and that firms determine the level of employment in the short run. Use an AD/AS diagram to model the goods market, a labor demand/supply diagram to model the labor market, and the loanable funds diagram to model the financial market. Assume that in addition to the real interest, consumption depends on current disposable income and the present value of future disposable income. Speculate what would happen in the current time period to
a.An increase in the money supply
.b.Government spending increases as a result of an increase in military expenditures. Assume that government budget remains balanced.
c.A permanent change in technology that results in greater output for the same amount of inputs and that increases the marginal products of labor and capital.
d.There was a temporary increase in the price of oil. Why does an increase in price of oil pose a dilemma for the monetary authority (Fed)?
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