User Account

All Pages

Characterize behavior of inflation in medium-run

Assignment Help Macroeconomics
Reference no: EM132476846

Problem: The medium-run equilibrium is characterized by four conditions: 

  • Output is equal to potential output Y = Yn. 
  • The unemployment rate is equal to the natural rate u = un. 
  • The real policy interest rate is equal to the natural rate of interest rn where aggregate demand equals Yn.
  • The expected rate of inflation ?π?e is equal to the actual rate of inflation π. 

a. If the level of expected inflation is formed so pe equals ?π?(-1), characterize the behavior of inflation in a medium-run equilibrium. 

b. If the level of expected inflation is ?π? , what is the level of actual inflation in the medium-run equilibrium? 

c. Write the IS relation as Y = C(Y - T) + I(Y,r + x) + G. Suppose rn is 2%. If x increases from 3 to 5%, how must the central bank change rn to maintain the existing medium-run equilibrium. Explain in words. 

d. Suppose G increases. How must the central bank change rn to maintain the existing medium-run equilibrium? Explain in words. 

e. Suppose T decreases. How must the central bank change rn to maintain the existing medium-run equilibrium? Explain in words. 

f. Discuss: In the medium run, a fiscal expansion leads to an increase in the natural rate of interest.

Reference no: EM132476846

Questions Cloud

Fiscal consolidation at the zero lower bound : How does the zero lower bound on nominal interest rates make a fiscal consolidation more difficult?
Suppose the number of immigrants per year allowed : Suppose the number of immigrants per year allowed to enter the United States is sharply increased. How would Okun's law change?
Discussion about the life cycle costing : From the video below, discuss at what point an administrator should decide when the product should be terminated during the life cycle analysis.
Determine and add all overhead amounts to obtain the total : Add all overhead amounts to obtain the total. Divide individual overhead amounts by budgeted production volume for each product to obtain overhead per unit
Characterize behavior of inflation in medium-run : If the level of expected inflation is formed so pe equals ?p?(-1), characterize the behavior of inflation in a medium-run equilibrium.
Growth of a nations standard of living : Property rights, how important is this for the growth of a nations standard of living?
Explain different ways in which californians can practice : List ALL of the differences between the U.S. federal government and the California state government in terms of the three branches (legislative, executive).
Calculate the optimal number of dozens of product to make : Complete dozen, so make sure the changing cells are integers. Use Solver to calculate the optimal number of dozens of product to make.
Explain competing solutions to the problem : Explain two competing solutions to this problem while addressing the responsibilities of each level of government (federal, state, and local) and the three.

Reviews

Write a Review

Macroeconomics Questions & Answers

  Explore how a firm determines the optimal scale of a plant

Explore how a firm determines the optimal scale of a plant for a given rate of output and why this determination relates to longer run strategies versus current operations. Also, discuss the differences between economies of scale and economies of ..

  Considering using a piece of park land

A county is considering using a piece of park land for one of two alternative recreation projects. Project A would require construction costs of $2 million (year 0) and generate net benefits of $1 million per year for 10 years.

  Solving problem about competitive market

Most commercial fish species in nearly every ocean and sea are rapidly depleted. The world fisherman and vessels represent twice as much fishing power as major stocks of fish can sustain.

  What is stagflation

What is stagflation? Would it be best to respond to this scenario with a temporary or a permanent tax cut... or neither? Explain.

  Describe any competitors existing production in the country

Describe any competitors' existing production in the chosen country. What is the difference between the types of economies and how might this affect expansion?

  Discuss current economic and political situation in country

Assess and discuss current economic and political situation in a country of your choice and, using appropriate theory, make recommendations for the future

  State income tax of 5 percent in addition to the federal inc

Mango Corporation has before-tax income of $450,000 and is subject to a state income tax of 5 percent in addition to the federal income tax. What is Mango’s after-tax cash flow?

  Derive the inflation rate that minimizes the loss function

Do you think that monetary policy should cooperate with fiscal policy? If so, why? How could their joint actions affect the level of the debt-to-GDP ratio?

  Advantages of democratic and overall leadership

What are the advantages of democratic and overall leadership?

  Find the equilibrium price and quantities

Find the equilibrium price and quantities for the case in which the two taxi companies engage in Cournot (quantity) competition. What profits will Big Ben Taxis and Whitehall Taxis earn.

  Market effect of increased income

Market effect of increased income. Consider the market for restaurant meals . use a demand and supply graph to predict the market effects of increase

  What is the present value of a constant perpetuity

What is the present value of a constant perpetuity of 25 per year where the required rate of return is 5%?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd