What are the effects on aggregate outcomes

Reference no: EM133504340

Suppose that the economy is well described by the New-Keynesian with partial sticky prices. Assume that the ZLB on nominal interest rate is binding. In your answer below, keep in mind the consumers' and firms' optimaldecisions that give rise to the model and

explain how and why agents'decisions change.

Bank runs generate a large increase in spreads f_t in the economy. What are the effects on aggregate outcomes (??, ??, ??)? How does it compare to the case where the ZLB is not binding? Use diagram to support your answer
The Central bank, as lender of last resort, decides to inject large amounts of money into financialinstitutions. Analyse the transmission mechanismof this policy action as well as its effectson output and price level.

Reference no: EM133504340

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