EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Chapter 10, Problem 9RQ
To determine
To Explain: The conclusion made by the basic classical model on the neutrality and the non-neutrality of money without misperceptions on price levels.
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- In the model SIM of chapter 3 of the book of Godley, Wynne, and Marc Lavoie. 2012. Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. 2nd ed. 2012 edition., starting from a stationary state simulate the effect of an increase in government expenditure under four variations of the model: the simple deterministic model of the book. Discuss the trajectory of output from the original stationary state to the new one.arrow_forwardAre the following statements true or false? Justify your answer with macroeconomic theory. (a) An increase in public expenditure will always increase inflation more than output. (b) With a flexible inflation target, the central bank will emphasize both inflation and inflation exchange rate to an equal degree.arrow_forwarda) Which of the following would a classical macroeconomist disagree with? The interest rate is the price of time or productivity of capital Nominals effect nominals Recessions are caused by an over production of all economic goods Prices should be as flexible as possible Effective demand comes from prior supply b) Which of the following is true? The expected costs and returns for holding money are important for estimating the demand of real cash balances The difference between nominal GNP and real GNP is that nominal GNP has been adjusted by a price deflator to account for changes in the value of money (inflation) People in Group 1 receive the inflation tax on their cash-balances Interest is the price of money The real money supply is equal to the nominal money supply divided by the real money supplyarrow_forward
- State the main features of the monetary model. Use the model to analyse the impact of an expansionary monetary policy.arrow_forwardWhat are the differences between the Fisherian and Cambridge versions of the quantity theory of money? In the Classical model, what role does money have in determining output, employment, the price level and the interest rate ? Show by diagrams.arrow_forwardanswer c and d Suppose that the following system of equations describe the macroeconomy of a hypothetical country: Y= C(y)+I(i)+G : IS or goods market M/p=L(i,y) : LM or money market b) Taking money supply and government expenditure as exogenous and the price level as fixed, determine and provide economic intuition for the signs and magnitudes of the following multipliers dY/dG and di/dG c) For a simultaneous increase in both the interest elasticity of investment and interest elasticity demand for money parameters, determine the net effect on the values of the multipliers in part b). d) For a horizontal LM curve, determine the numerical values of your answers in part b) above if: Marginal propensity to consume=5/6 Tax rate=0.25 Interest elasticity of investment=5 Interest elasticity of demand for money=50 Income elasticity of demand for money=2 answer c and d onlyarrow_forward
- Suppose an economist believes that the price level in the economy is directly related to the money supply, or the amount of money circulating in the economy. The economist proposes the following relationship: P=A×MP=A×M • P=Price LevelP=Price Level • M=Money SupplyM=Money Supply • A=A composite of other factors, including real GDP, that change very slowly over time.A=A composite of other factors, including real GDP, that change very slowly over time. How might an economist gather empirical data to test the proposed relationship between money and the price level?arrow_forwardHow does rule based monetary policy help to overcome the time inconsistency problem? What is one potential issue with rules based monetary policy?arrow_forwardIn the model SIM of chapter 3 of the book of Godley, Wynne, and Marc Lavoie. 2012. Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. 2nd ed. 2012 edition., starting from a stationary state simulate the effect of an increase in government expenditure under four variations of the model: a model where expected disposable income is the weighted average of the two previous periods disposable income: Y De = 0.5 ∗ Y D−1 + 0.5 ∗ Y D−2 Discuss the trajectory of output from the original stationary state to the new one.arrow_forward
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