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“Super Neutrality” and Changes in Money Growth in the RBC Macro Model.
Consider the basic flexible-price, market-clearing model (which satisfies the Classical Dichotomy) in which r and Y are constant as long as there are no shocks to preferences or technology. The nominal stock of money is growing at rate μ so that:
Mt = Mt-1(1+μ), μ > 0.
Show the money-market clearing condition which determines the price level (P) at any time t.
For r and Y constant, what is the equilibrium rate of inflation and the equilibrium nominal interest rate? Explain.
In a diagram with ln(P) and ln(M) on the vertical axis and time on the horizontal axis, show the time paths of ln(P) and ln(M). (Hint: The nice thing about graphing ln(x) -- the natural log of x -- is that a constant rate of growth of x means that ln(x) is linear.)
Illustrate the effects of the following events on the dollar-peso exchange rate, i.e., the value of one peso in terms of dollars. label the axes and explain how you arrived at your answer. (Hint: the x-axis should be labeled “pesos” and the y-axis la..
A market has a demand curve described by P=26-Q, a supply curve described by P=10+Q, and a price ceiling of 12. Calculate the Total Surplus of the market with the price ceiling.
Consider an organization where you work, or one with which you are familiar. What is an issue within the organization that could benefit from applying ethical principles? How can these principles be used?
The Baseball Players’ Association has voted to go on strike if a settlement is not reached with the owners within the next month. The players’ representative, Melvin Mulehead, has two strategies (containing different free agent rules, pension formula..
Assume you are assigned to conduct an audit of a municipal police department that has been awarded a state and federal grant to reduce driving while intoxicated violations over an 18- month period. What documents, statistics and analysis would you wa..
What is the four-firm concentration ratio (CR4)? What is the Herfindahl-Hirschman Index (HHI)? How do these two measurements differ? How are they similar? Calculate the CR4 and the HHI for the following two situations:
Two goods are substitutes if an increase in the price of one good leads to an increase in demand for the other. The market system works by getting each person, motivated by his or her own self-interest, to produce products for other people. Markets e..
Explain which it would not be optimal for Firm 1 to make the investment if there were no threat of entry.
As a result of the fall of the “iron curtain” in 1989, many Americans felt less threatened by Russia and called for massive reductions in the defense budget as a “peace dividend”. Illustrate the changes that would occur by graphing the adequate curve..
Suppose there are two groups, a high price group and a low price group. Assume the monopoly has no fixed costs such that operating with a loss corresponds to operating where revenue is less than variable production costs. Also assume that if the mono..
Consider a risk free asset that can be bought (lent) or sold (borrowed) with an interest rate of 75% such that $1 today is worth$1.75 a period later. What is the number of shares (X) to be held in addition to the -$14.29 in the replicating portfolio?..
The equation for the demand curve for hotel rooms in Boston is given by P=5000-0.48Qd. The supply curve is given by P = 0.02Qs. Prices are nightly rates in dollars.
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