Consider the following open-economy version of the IS Curve: Y₁ = a - b (R₁-F) + bnz (R; -F)-bnz (Re-F). where a = a +äg +ãi + anz-1. There are no demand shocks and R = R; =f. Moreover, än 0. In response to a public health emergency central banks around the world are lowering real interest- rates by 1 percentage point. If b,and b, calculate Y, (in percent).
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- Do the existence of SIFIs represent a threat to the economic stability of the country? Why or why not? Explain how the post great-recession regulations tried to deal with this issue.Do the existence of SIFIs represent a threat to the ecnomic stability of the country? Why or why not? Explain how the post great-recession regulations tried to deal with this issue.PDFps9.pdf 2 of 3 + File | C:/Users/Wiam/Downloads/ps9.pdf Q LRAS 2) Suppose a country begins in full equilibrium in the AS-AD model at point A: P 1 W A SRAJ T * בר The country has a large agricultural sector this could be a developing country where agriculture still has substantial weight in GDP. The country relies on a large dam for much of the water supply it uses for irrigation. A serious accident damages the dam. The water flow will be substantially curtailed for years. a) Use your diagram to illustrate the effect of the accident on the economy in the long run. Make any assumptions you think are necessary. b) You are a central banker in this country. What are your concerns? Do you worry about YR? About P? If you were to adopt policies to address these concerns, is there a tradeoff in terms of dealing with these two? Illustrate with your figure. 3) Suppose that the country in the problem above the one that suffers from the dam accident is a Malthusian economy. That is, assume the…
- Brexit and Covid-19 restrictions may result in a recession. How can the UK government and Bank of England fix this with both fiscal and monetary policy?(a) Using the appropriate graphs, consider the short run impact of a natural disaster that causes a sudden drop in the capital stock using a real intertemporal model with investment (i.e., the simple intertemporal model without money). Explain the impact on wages, interest rates and investment. Does the model provide an unambiguous prediction for the impact of the disaster on hours worked and short-term output? Why or why not?PQ 26 How, using the IS/LM/Bp model, can as increase in foreign interest rates lead to an increase in domestic interest rates?
- Consider the Inter-temporal Model with two time periods, t=0 and t=1. Home is a small open economy that can borrow and lend in the first period at the world real interest rate of 5%. In the first period, output is Yo = 100 and in the second period Y1 = 100. The country wants to smooth consumption as much as possible. The country ended period t=-1 with positive external assets, W-1 = 50. %3D What is the value of the current account in period O and period 1? Also, what is the value of net factor income from abroad in period 1? What is the value of the trade balance in period O and period 1?A. Explain the concept of Ricardian Equivalence. Do you believe it holds in practice? Why or why not? Explain. B. Under what circumstances might an increase in worldwide interest rates r* be beneficial for a small open economy (SOE)? Explain. C. What argument, based on macroeconomic theory, might a government use to justify shutting down a newspaper critical of its policies? If you were asked to provide a counterargument, what would it be? Explain.Sunshine is a small open economy described by the following long-run classical equations where Y is the economy's real GDP, T-taxes, G-government spending, NX-net exports, l-investment, C-consumption, r-domestic interest rates, r* - world interest rates. Y = 4000 G = 1250 T = 1000 C = 250 + 2/3 (Y-T) I = 450 - 25r NX = 1250 - 175epsilon r =r^ * =4 a) Required: Select the appropriate answer that represent [i] investment, [ii] national savings, [iii] equilibrium exchange rate and [iv] trade balance. b) Suppose the government of sunshine cut its spending to 2,000. Required: Select the appropriate answer that represent [i] investment, [ii] national savings, [iii] equilibrium exchange rate and [iv] trade balance. c) Now suppose the world interest rate falls from 8 to 3 percent, (G is again 2000). Required: Select the appropriate answer that represent [i] private savings, [ii] public savings, [ii] national savings, [iv] investment, [v] trade balance and [vi]…
- With COVID-19, many economies suffered from severe recession. To save their economies, a mix of monetary and fiscal policies was used in 2020. Explain how monetary policy and fiscal policy could be used to stimulate an economy under a recession. State their limitations under the COVID-19.Overstimulating the economy: Suppose the economy today is producing outputat its potential level and the infation rate is equal to its long-run level, with! = 2%. What happens if policymakers try to stimulate the economy to keepoutput above potential by 3% every year?(a) Using the appropriate graphs, consider the short run impact of a natural disaster that causes a sudden drop in the capital stock using a real intertemporal model with investment (i.e., the simple intertemporal model without money). Explain the impact on wages, interest rates and investment. Does the model provide an unambiguous prediction for the impact of the disaster on hours worked and short-term output? Why or why not? (b) Suppose we add a money market to this model. Is it possible to know the impact of the loss of capital following the natural disaster on the price level? Why or why not? (c) Assume that the economy's production function is Cobb Douglas so per- capita output is y = k", where k is per-capita capital. Using the Solow growth model, explain the impact of the loss of capital on the growth rate of per- capita output in the years following the disaster. (d) Given your answers to (a) and (b), are wars and natural disasters something we should welcome because it might…