Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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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
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Macroeconomics (9th Edition)
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- Consider 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 GDParrow_forwardWithin the New Classical framework, whether an expansionary monetary policy affects output or not depends on whether the policy is anticipated or unanticipated. Discuss and give relevant real-world examples. [Show relevant graphsarrow_forwardThe Yd(IS) curve in the New Keynesian model is identical to which of the following in the intertemporal monetary model? A. the production function B. the output supply curve C. the labour supply curve D. the output demand curve E. the labour demand curvearrow_forward
- In the “Classical Theory of Inflation”, what determines the price level and the value of money? Explain using a supply and demand plot.arrow_forwardUsing a New Classical macroeconomic framework, critically explain the effects of a change in the unobservable component of the money supply on the price level.arrow_forwardHow does the decision to reduce the policy rate impact the economy. Explain using the ISLM model focusing on impacts on the goods and services market and the financial market.arrow_forward
- Using graphs, explain how interst rate works in the classical system to stabilise aggregate demand in the face of autonomous changes in components of aggregate demand such as investment or government spending.arrow_forwardAccording to the classical theory of money, inflation does not make workers poorer because wages increase: Select one: a. faster than the overall price level. b. more slowly than the overall price level. c. in proportion to the increase in the overall price level. d. in real terms during periods of inflation.arrow_forwardThe use of monetary policy is highly debated among classical and Keynesian economists. Where do they agree and where do they disagree with respect to monetary policy?arrow_forward
- Can you please help with the explanation of the below? In contemporary monetary theory, we do not normally think of using a money stock to implement monetary policy. By setting m-p, the log of the real money stock, equal to money demand y-b.i where y and i are ln(GDP) and the interest rate, create a money policy reaction function. Noting that p+y is the log of nominal GDP how could you interpret m in this case so as to make your equation approximate the reality in Australia?arrow_forwardIn the goods-and-services market actual inventories have started to rise above optimal inventories. What could have happened to autonomous money demand to bring this about? Explain and diagrammatically represent your answer. In doing so, be sure to explain and diagrammatically represent what happens to the rate of interest, investment, and Y. In explaining what happens to Y, be sure to fully explain the equilibrium process in the simple Keynesian modelarrow_forwardDistinguish between the Keynesian theory and the neoclassical theory of money demandarrow_forward
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