Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 36, Problem 3PA
Subpart (a):
To determine
The problem of time inconsistency.
Subpart (b):
To determine
The problem of time inconsistency.
Subpart (c):
To determine
The problem of time inconsistency.
Subpart (d):
To determine
The problem of time inconsistency.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose you are the president of a hypothetical economy. You have to fix healthcare and run the automobile industry . But Swine flu is breaking all over.
a) We know that the economy also suffers from sour expectations about future productivity. Represent in a neatly drawn ISLM figure that, all else equal, those expectations, in conjunction with the flu outbreak described in part A above, could result in a decline in GDP and a decline in real interest rates without any change in the price level.
b) Why do prices not rise in the scenario described in part A?
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 GDP
Please use the AD-AS model to analyze the effects of monetary policy and fiscal policy on economic outcome in an open economy:
a. Please show graphically the shifting of the AD curve after the Fed conducts an expansionary monetary policy in a closed economy (A closed economy means there is no international trade.). How do the price level and the real GDP change?
b. Suppose the economy becomes an open economy. Please revise the result that you get in part (a). Please explain how you get the new result using the AD-AS model.
c. Please show graphically the shifting of the AD curve after the federal government conducts an expansionary fiscal policy in a closed economy. Please show the crowding-out effect. How do the price level and the real GDP change?
d. Suppose the economy becomes an open economy. Please revise the result that you get in part (c). Please explain how you get the new result based on the AD-AS model.
Chapter 36 Solutions
Principles of Economics (MindTap Course List)
Ch. 36.1 - Prob. 1QQCh. 36.2 - Prob. 2QQCh. 36.3 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 5QQCh. 36.6 - Prob. 6QQCh. 36 - Prob. 1CQQCh. 36 - Prob. 2CQQCh. 36 - Prob. 3CQQCh. 36 - Prob. 4CQQ
Ch. 36 - Prob. 5CQQCh. 36 - Prob. 6CQQCh. 36 - Prob. 1QRCh. 36 - Prob. 2QRCh. 36 - Prob. 3QRCh. 36 - Prob. 4QRCh. 36 - Prob. 5QRCh. 36 - Prob. 6QRCh. 36 - Prob. 7QRCh. 36 - Prob. 8QRCh. 36 - Prob. 9QRCh. 36 - Prob. 10QRCh. 36 - Prob. 1PACh. 36 - Prob. 2PACh. 36 - Prob. 3PACh. 36 - Prob. 4PACh. 36 - Prob. 5PACh. 36 - Prob. 6PACh. 36 - Prob. 7PACh. 36 - Prob. 8PA
Knowledge Booster
Similar questions
- 1) Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/ AS diagram, based on the Keynesian model, for what the nation hopes will happen. Then draw a second AD/ AS diagram, based on the neoclassical model, for what is more likely to happen (if drawing your answer is a challenge, please describe your answers in words and/or numbers). 2) Explain why the government might prefer to provide incentives to private firms to do investment or research and development, rather than simply doing the spending itself?arrow_forwardThe government of Prime Minister Shinzo Abe said it would offer some $15 billion in financing for businesses hit by the novel coronavirus and spend about $4 billion directly to prop up the economy.“As the top priority for the time being, we have to put all our effort into keeping businesses alive,” Mr. Abe said.Still, in a $5 trillion economy, the measures may not be big enough to dig the country out of a big hole. SMBC Nikko Securities economist Junichi Makino said he expected the Japanese economy to shrink at an annualized pace of 5.8% in the January-to-March period following a 7.1% contraction in the last quarter of 2019.Japan is set to offer emergency no-interest loans of about $1,900 to newly jobless people and others in trouble, and the borrowers may not have to pay the money back if they can’t find work. Businesses at risk from the virus can access financing or loan guarantees from the government QUESTIONS: 1. How would the financing plan designed to supports businesses impact the…arrow_forward(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…arrow_forward
- Consider the following two alternative definitions of a recession: 1.A period of negative output growth. 2.A period when the output level is below the country's potential, or normal, level. Now consider a country that has been producing a lot of oil, whose oil wells have suddenly run out. This results in both its potential, and actual, output falling. Which of the following statements are correct? The policymaker using the second definition may underreact to the slowing output. The policymaker using the first definition may underreact to the slowing output. O According to the first definition, the country is now unambiguously in a recession. O According to the second definition, the country is now unambiguously in a recession.arrow_forwardA. 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.arrow_forwardC1. What is meant by the "time inconsistency" of economic policy? Why might policymakers be tempted to renege on an announcement they made earlier? In this situation, what is the advantage of a policy rule?C2. What are the policy issues connected with economic growth?C3. Briefly describe how Modigliani's life-cycle hypothesis and Milton Friedman's permanent income hypothesis solve the consumption puzzle.C4. Is the government debt really a problem? Describe the traditional view and the Ricardian view. answer all the parts please and correctly.arrow_forward
- Suppose the economy is in equilibrium, with real interest rates equal to 4% and National Savings equal to $1,600 billion. Furthermore, suppose consumption depends on interest rates. a. Using the classical model, explain, and graphically illustrate how an increase in government spending by $400 billion will affect aggregate demand and aggregate output. b. Using the classical “equation of exchange”, explain how this increase in government spending will affect the inflation rate.arrow_forwardSunshine 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]…arrow_forwardAccording to the logic of the investment demand curve in the IS model, which of the following statements is correct? Select one or more: Oa When R is equal to F, monetary policy is neutral and investment as a share of output Y is at the level determined by a,Y. O b. When R is equal to F, monetary policy is neutral and investment as a share of output Y is 0. The value of F is determined the marginal product of capital, a supply side feature of the economy Od. When R is greater than F, monetary policy is stimulating total spending.arrow_forward
- Which of the following is correct? a. A recession in other countries reduces U.S. net exports so that U.S. aggregate demand shifts left. b. An increase in the money supply causes the interest rate to decrease so that aggregate demand shifts left. c. An increase in stock prices reduces consumption spending so that aggregate demand shifts left. d. An increase in the price level causes the exchange rate to rise so that aggregate demand shifts left.arrow_forwardSupply-side economics advocates that the government A. do all in its power to stimulate growth; B. do all in its power to limit growth; C. set quotas on production.arrow_forwardSuppose an economy is experiencing recession. From the list below, select two (2) policy tools that the government can use to restore the economy back to a long-run macroeconomic equilibrium. Note: if you select more than two policy tools, 1 point will be taken for each additional choice. A. The government can decrease income taxes. B. The government can increase interest rates. C. The government can increase government spending. D. The government can send optimistic messages to boost expectations. E. The government can expand the resource base.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
