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Consider the economic data for Country A: Unemployment level of 15% Natural Rate of Unemployment is 6%. Required Reserves is 25% C = 50 + 0.75Y; I = 600; G = 250 (note: T = 200 for purpose of this assignment assume Y = Yd)
Equilibrium GDP = Y = C + I + G
The full employment level of Real GDP is 4,000. MS = 425 MD = 400 - 500r + 0.75Y
Using the Business Cycle Diagram, show this economy.
Label: The current year as Year A Full employment level of Real GDP The current level of Real GDP The recessionary or inflationary gap Natural Rate of Unemployment Use Aggregate Demand and Aggregate Supply to show this economy. Suggest and show the results of a Fiscal Policy action that will bring this economy to full employment level of Real GDP. Explain the effect on the fiscal budget and show the effect on the Money Market and the Investment Market. Suggest, and show, a Monetary Policy action that would restore the original equilibrium level of interest. Also show the result of this Monetary Policy action on the Investment Market and the Goods and Services (AS/AD) Market.
Why might it be difficult for the Fed to formally adopt inflation targeting? Would inflation targeting be a good policy for the Fed in the present economic environment
In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?
Describe the present economic crisis situation in Europe. Why has it been so difficult for the Europeans to find a solution to this problem? Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..
Question:. Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading.
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Problem based on Utility Function - Problem, Answer and explain the following using a diagram which is completely labeled.
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Question Positive Balance of Payment: "Things will look good for the US if we could just get to where we are consistently running a positive Balance of Payments."
Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibrium real interest rate in the financial crisis that hits United States first starting in fall 2007.
How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world.
Banking crises crisis decreases depositors' confidence in the banking system. What would be the effect of a rumor about a banking crisis on checkable deposits in such a country?
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