Q: Show how to derive an IS curve that includes the consumption multiplier
Show how to derive an IS curve that includes the consumption multiplier. That is, show how to derive equation (11.16). Draw a graph of the original IS curve and the IS curve that includes the multipli...
See AnswerQ: The amount of goods that the U.S. economy imports
The amount of goods that the U.S. economy imports might depend on the current state of the economy as well as on potential GDP. For example, when the economy is booming, imports usually rise. To incor...
See AnswerQ: The Federal Reserve exercises monetary policy by means of a very short
The Federal Reserve exercises monetary policy by means of a very short- term, overnight nominal interest rate. Explain how changes in this overnight nominal rate influence longer- term real interest r...
See AnswerQ: Go back to exercise 3 and explain what happens in the full
Go back to exercise 3 and explain what happens in the full short- run model (including the Phillips curve and allowing the economy to evolve over time). Do this for both parts (a) and (b), and be sure...
See AnswerQ: Suppose the slope of the Phillips curve—the parameter ν—
Suppose the slope of the Phillips curve—the parameter ν—increases. How would the results differ from the Volcker disinflation example considered in the chapter? What kind of changes in the economy mig...
See AnswerQ: Between 1995 and 2000, the U.S. economy experienced
Between 1995 and 2000, the U.S. economy experienced surprisingly rapid growth, termed the “new economy†by some observers. Was this a change...
See AnswerQ: In the context of the money supply- and- demand diagram
In the context of the money supply- and- demand diagram, explain the effects of financial innovations like e- commerce and the increased prevalence of credit card readers in stores. Are the effects po...
See AnswerQ: Using the IS- MP diagram, explain what happens to the
Using the IS- MP diagram, explain what happens to the economy if there is a temporary consumption boom that lasts for one period. (a) Initially, suppose the central bank keeps the nominal interest rat...
See AnswerQ: Suppose you are appointed to chair the Federal Reserve. Your twin
Suppose you are appointed to chair the Federal Reserve. Your twin goals are to maintain low inflation and to stabilize economic activity—that is, to keep output at potential. Why are these appropriate...
See AnswerQ: With the goal of stabilizing output, explain how and why you
With the goal of stabilizing output, explain how and why you would change the interest rate in response to the following shocks. Show the effects on the economy in the short run using the IS- MP dia...
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