Real rate was equal to the marginal product of capital

Assignment Help Business Economics

Reference no: EM13839561

You need both equations and clearly labeled graphs (separate graphs for each question) to answer the following questions. Assume that b=1/2 and that initially the real interest rate is equal to the marginal product of capital at 3%. As well, assume that v=2 and that the inflation rate last period was 2%. Assume the natural rate of unemployment is 5.5%.

a. The Sequester is probably a bad idea. Use the IS-MP model we developed in class to explain what should happen to the economy if the government cuts spending by 1 percentage point of potential GDP.

b. How much can we expect this to increase the unemployment rate? (no need for a graph)

c. How much will this change inflation? What will the inflation rate be in the period of the cuts?

d. What was the nominal interest rate last period (before the cuts) if the real rate was equal to the marginal product of capital.

e. What happens to the real rate of interest this period (after the cuts) if the Federal Reserve does nothing to change the nominal rate. What will this do to the economy? Remember that the government has cut spending in question 2a.

f. What does the Federal Reserve have to change the nominal interest rate to in order to close the output gap?

Reference no: EM13839561

Questions Cloud

Explain the laboratory preparation of one litre : Explain the laboratory preparation of one Litre

What reports would you suggest superscreens ltd use : What report(s) would you suggest Superscreens Ltd use if they wish to monitor the company's financial performance on a monthly basis. Provide reasons for your answer.

What is the prefix and how does the prefix change meaning : what is the prefix and how does the prefix change the meaning?

What are the coordinates of point p? : What are the coordinates of point P?

Real rate was equal to the marginal product of capital : You need both equations and clearly labeled graphs (separate graphs for each question) to answer the following questions. Assume that b=1/2 and that initially the real interest rate is equal to the marginal product of capital at 3%. How much will thi..

Why wasnot martha smith eligible for a death benefit? : Why wasnot Martha Smith eligible for a death benefit?

Write the total differential for dh : Deriving relations ships using partial differentiation: Enthalpy is a function of pressure (p) and temperature (T). Write the total differential for dH. Enthalpy is also a function of entropy and pressure: dH=Vdp+TdS use this to derive an equation fo..

Consumer and business confidence and the economy : How can an event such as the terrorist attacks of September 2001 affect consumer and business confidence and the economy?

Calculate variance in turnover trend for department stores : Compute standard deviation of the mean and show in a graphical format. Calculate variance in the turnover trend (%) for department stores in 2012.Analyse the top industry group performance in each of the states

User Account

All Pages