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- In the basic New Keynesian model. suppose that the anticipated future rate of inflation goes up due to a future increase in energy prices. Determine the effects and explainWhy 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 answerIn the New Keynesian Model, assume that the goal of The Fed is to keep unemployment as low aspossible. What is the appropriate response to a negative real shock? a.Increase the money supply, shifting DAD to the left b.Buy bonds, shifting DAD to the right c.Sell bonds, shifting DAD to the left d.Decrease the money supply, shifting DAD to the left e.None of the above
- In the basic New Keynesian model, suppose that there is an increase in the future marginal product of capital. Explain your results with the aid of diagrams. Suppose that the central bank keeps the nominal interest rate at its initial value. What will be the effect on current inflation and on output? Suppose that the economy initially faces an increase in anticipated future inflation and a zero output gap. When the shock occurs, what should the central bank do?Summarize the Keynesian and Neoclassical models.Use the New-Keynesian model with partial sticky prices studied in class to analyse the following shock and policies (use the five-graph diagram to support your answer).a) The Covid-19 pandemic has caused recession in many countries, including the United States, Australia… Analyse the effects of this Covid shock which brings the Australian economy relatively close to the ZLB .b) The Central bank conducted conventional monetary policy to counter the shock. Suppose that due to this monetary policy, the economy is at the ZLB and output is still below potential level. Moreover, due to the intensification of the pandemic with deadly Delta variant, the zero lower bound is binding. Suggest the policy actions to bring output back to potential level.
- Some economists believe that a reduction in the level of economic activity and an increase in unemployment are inevitable.’ Use the extracts and your knowledge of economics to assess the view that when an economy experiences a negative economic shock there will always be a sustained increase in unemployment.To study macroeconomics, one needs various models with different assumptions about the flexibility and/or stickiness of price levels. This is because: A.) the price flexibility is a short-run phenomenon while, the price stickiness is a long-run phenomenon. B.) the economy behaves so differently depending on how much time has passed after a demand shock. C.) various government policies are useless to eliminate the effects of an unexpected demand shock. D.) the economy behaves similarly to demand shocks regardless of the length of time.Suppose that Cagan(Philip Cagan, The Cagan Model) had assumed that expectations were desbribed by πt = Δpt, so that the expected value of Δpt+1 was equal to the most recent value. What would he have concluded with regard to dynamic stability?
- 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.Suppose the U.S. economy is Keynesian (i.e., sticky prices in the short run) and can be described by the following relationships: C d = 20 + 0.75Y I d = 75 − 1300r + 100α NX = 80 − 0.1Y − e e = 50α − 0.05Y + 100r Md P = Y − 100r where α represents an index of political instability in the rest of the world (relative the USA); i.e., the higher is α, the more unstable.The Keynesian theory was first introduced in 1936. Why was it presented at that time, and what policy implications did it have?