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Give a brief description of the transmission mechanism
1. When the central bank target rate increases, other interest rates in the economy will increase (and the money supply will decrease, but that is not important here).
2. With higher interest rates, it is more expensive to borrow and more advantageous to save. Therefore, consumption and investment will decrease (we say that the central bank "cools off" the economy).
3. As consumption and investment fall, GDP is reduced and unemployment will rise. This will cause inflation and the growth rate in wages to fall.
Explain how inflation unemployment trade-off is not feasible under adaptive expectation.MEC002
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Consider the multiplier model we have studied in class. Assume that the economy is initially in equilibrium and that real income is $180. The marginal propensity to expend is 0.66.
Suppose the utility function is given by: u(x,y) = 3x+4y. What kind of goods are X and Y and what is the MRS?
The manager of the world famous Koala Caves offers a tour each afternoon starting at 3pm. The caves can be shown to only four people per day without undermining their ecology. Occa
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how the theories of trade cycle affects in the business
Evaluate the impact of an aging population on state and local government expenditures. Suggest strategies that government should take in dealing with this situation. Justify your r
Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (The price floor is officially set at $16.10 per hu
Financial and Real Investment Financial investment simply means transfer of right from one party to another. While one party has made investment, the other has made disinvestme
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