A financial crisis substantially raises the risk premium (i.e. financial frictions increase) and simultaneously makes households and firms pessimistic about the economy, decreasing autonomous consumption and investment. Assume the shock is so large that the nominal interest rate reaches zero, the economy's zero lower bound. a) Draw the MP curve, IS curve, and AD curve below and above the zero lower bound. Describe why the slope of the MP and AD change at the zero lower bound. b) Explain using words and graphs how the economy responds to this large shock in the absence of government intervention. What are the economy's typical self-correcting mechanisms in normal times? In these circumstances, do they return the economy to potential output. Why or why not? c) Describe the actions that the Federal Reserve took in response to the financial crisis of 2008-9 after the economy reached the zero lower bound. Use AD-AS diagrams to explain how these policies helped the economy recover after the economic and financial tsunami. e

A financial crisis substantially raises the risk premium (i.e. financial frictions increase) and simultaneously makes households and firms pessimistic about the economy, decreasing autonomous consumption and investment. Assume the shock is so large that the nominal interest rate reaches zero, the economy's zero lower bound. a) Draw the MP curve, IS curve, and AD curve below and above the zero lower bound. Describe why the slope of the MP and AD change at the zero lower bound. b) Explain using words and graphs how the economy responds to this large shock in the absence of government intervention. What are the economy's typical self-correcting mechanisms in normal times? In these circumstances, do they return the economy to potential output. Why or why not? c) Describe the actions that the Federal Reserve took in response to the financial crisis of 2008-9 after the economy reached the zero lower bound. Use AD-AS diagrams to explain how these policies helped the economy recover after the economic and financial tsunami. e

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The figure below shows a simple macroeconomic consumption model. The letters N and D indicate curves, the letters T, A, L and Q denote (intersection) points. The "auxiliary triangles" marked in burgundy mean that if the value of the horizontal section shown in them is considered to be 1, the value of the vertical sections is s and r, respectively. It is known that L is 100 and ris 0.75. T 45° A 1 Give the equation of the savings function: S= (use a decimal point and 2 decimals if needed, and write capital letters as an unknown variable) How much is the value of A on the X axis?
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Ts assume that in the model of national economy household consumption is C = 300 + 0.9*DI, companies' gross vestment is Ig = 200, but government expenses are G = 250, while the sum of taxes collected by the government iS -150. Taking into account that disposable income DI =Y-T, calculate: a) Equilibrium level of income Y; b) Calculate the value of Marginal propensity to consume and value of Marginal propensity to save; c) Private consumption at macroeconomic equilibrium%3; d) Develop equation of saving and calculate amount of saving at the point of equilibrium level of income.
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nheducation.com/flow/connect.html 10 Homework Saved Help Save & E Refer to the table below and suppose that the real interest rate is 6 percent. Next, assume that some factor changes such that the expected rate of return declines by 2 percentage points at each prospective level of investment. Cumulative Amount of Investment Having This Rate of Return or Higher (Billions per Year) Real Interest Rate (i) and Expected Rate of Return (r) 16% $0 14 5 12 10 10 15 20 25 30 4 35 2 40 0 Instructions: Enter your answer as a whole number a. Assuming no change in the real interest rate, by how much and in what direction will investment change? Next 12 of 16
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Hello Can you tell me what the implication of the "Euler equation of consumption " do and what the meaning is behind it R = Expected return delta = Stochastic discount factor C = consumption
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