Exercise 4 Use a combination of text and drawing of figures when answering the following questions: a) Discuss the effect of an expansionary fiscal policy using the IS TR model. Why does the interest rate change and what does it mean for the Keynesian multiplier? b) How will the answer from the previous sub-question change if: i. the inflation targeting of the Central Bank became more flexible? ii. the country opens up like after a pandemic leading to more imports? c) Explain the difference between the effect of an expansionary fiscal policy using an IS- TR-IFM model comparing Norway and Denmark as examples of countries with different exchange rate regimes. d) Assume a model where actual inflation depends on 1. Underlying inflation, 2. Output gap and 3. Supply chock. Explain in a diagram with an aggregate supply curve (AS) and using numbers for each of these three factors, the outcome in the short run and in the long run, if a negative supply shock like a war occurs.

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter24: Fiscal Policy
Section: Chapter Questions
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part C D 

Exercise 4
Use a combination of text and drawing of figures when answering the following questions:
a) Discuss the effect of an expansionary fiscal policy using the IS TR model. Why doces
the interest rate change and what does it mean for the Keynesian multiplier?
b) How will the answer from the previous sub-question change if:
i. the inflation targeting of the Central Bank became more flexible?
ii. the country opens up like after a pandemic leading to more imports?
c) Explain the difference between the effect of an expansionary fiscal policy using an IS-
TR-IFM model comparing Norway and Denmark as examples of countries with
different exchange rate regimes.
d) Assume a model where actual inflation depends on 1. Underlying inflation, 2. Output
gap and 3. Supply chock. Explain in a diagram with an aggregate supply curve (AS)
and using numbers for each of these three factors, the outcome in the short run and in
the long run, if a negative supply shock like a war occurs.
Transcribed Image Text:Exercise 4 Use a combination of text and drawing of figures when answering the following questions: a) Discuss the effect of an expansionary fiscal policy using the IS TR model. Why doces the interest rate change and what does it mean for the Keynesian multiplier? b) How will the answer from the previous sub-question change if: i. the inflation targeting of the Central Bank became more flexible? ii. the country opens up like after a pandemic leading to more imports? c) Explain the difference between the effect of an expansionary fiscal policy using an IS- TR-IFM model comparing Norway and Denmark as examples of countries with different exchange rate regimes. d) Assume a model where actual inflation depends on 1. Underlying inflation, 2. Output gap and 3. Supply chock. Explain in a diagram with an aggregate supply curve (AS) and using numbers for each of these three factors, the outcome in the short run and in the long run, if a negative supply shock like a war occurs.
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