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I)What was Keyne’s reaction to the classical views on the following:
Labour market
Market for loanable funds
II)Provide a Keynesian analysis on the linkage between inflation and employment and Discuss the tools which Keynes argued for as being effective for the government to alter aggregate demand.
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- In words, explain the key principles of the circular flow model versus theclosed-economy Keynesian cross model with autonomous investment.Critically discuss and compare the strengths and limitations of both models.Why Keynesian economics become popular back in 1930’s. Do you think that during 2005-08 financial crisis, Keynesian 1930 solution work for the economy? Explain your answerConsider a country whose economic structure matches the assumptions of the classical model. After reading a recent best-seller documenting a growing population of low-income elderly people who were ill prepared for retirement, most residents of this country decide to increase their saving at any given interest rate. Explain whether or how this could affect the following: a. The current equilibrium interest rate b. Current equilibrium real GDP c. Current equilibrium employment d. Current equilibrium investment e. Future equilibrium real GDP
- In the New Keynesian model, how should the central bank change its target interest rate in response to each of the following shocks? Use diagrams and explain your results. There is a shift in money demand. Total factor productivity is expected to decrease in the future. Total factor productivity decreases in the present.In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. a) According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market. b) (Continued from part a) As time passes (i.e., in the very long run which will be 10-15 years from now), what happens to the stocks of productive inputs in Canada? How would this change in the stocks of productive inputs affect the equilibrium levels of output and real interest rate in Canada? What happens to the real wage in Canada? Explain, and support your answer by a new set of loanable funds market and one for the labour market diagramsIn this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.
- The impact of Keynesian Policy can be diminished by secondary effects such as: a)Inflation – to the extent increasing Aggregate Demand causes inflation the impact on expanding the economy is dissipated by higher product prices b)Crowding-out effect of expansionary fiscal policy - To the extent expansionary Keynesian policy requires a government budget deficit and if this is financed by government borrowing, it may lead to rising interest rates, which will decrease private borrowing to finance investment spending as well as some consumption spending. c)Crowding out effect of monetary policy – As Expansionary policy leads to greater spending, the demand for money for transactions purposes (to buy products) increases, which may increase the interest rate which will crowd out private spending. d)All the above e)(a) and (b) only. Suppose that there is an increase in the price of housing, which the central bank judges is atemporary asset price bubble. In the New Keynesian model, determine the central bank’s optimalresponse to this asset price increase, using diagrams. Discuss your results.Question 6 Indicate whether each view follows the traditional (neoclassical) view of money, banking, and capitalist economies, or the (post)Keynesian view. Question 6 options: Money precedes production Production precedes money The level of investment depends most significantly on expectations ('animal spirits') Loans create the money necessary to invest, and therefore to produce and generate an income to deposit into banks. (loans create deposits) Deposits into banks create the funds that get loaned out. (deposits create loans) The level of investment depends most significantly on the interest rate Money developed through rational, private actors in an attempt to economize on transaction costs 1. Traditional (neoclassical) 2. (Post) Keynesian
- QUESTION ONEA. Provide a classical analysis on the linkage between the following:i. Output and employmentii. Price and inflationB. What was Keyne’s reaction to the classical views on the following: i. ii. Labour marketMarket for loanable funds C. Provide a Keynesian analysis on the linkage between inflation and employment.Discuss the tools which Keynes argued for as being effective for the governmentto alter aggregate demand.ONE or MORE THAN ONE CORRECT Q.1 Monetarists claim that None of the options stabilisation policies do not work. money supply growth must be controlled. classical model best explains macroeconomy. Q.2 Macroeconomics deals with infrastructure issues. policies surrounding automobile industry. None of the options direct taxes. export-import. Q.3 Rental Income in National Income None of the options includes royalty earnings. includes income from lending technology. include rent received by landlords.Explain the concept of “Divine Coincidence” and clearly state the cases where it holds and where it does not hold in the New-Keynesian model. In detail.
