The Great Recession was characterized by a collapse in housing prices, and a subsequent crunch in credit. Begin with the market for bank loans in equilibrium. A credit crunch occurs when the supply of bank loans contract leading to higher interest rates on bank loans. As interest rates on bank loans increase, what happens to durable consumption and planned investment, and why? These changes alter the Keynesian PAE model.

The Keynesian cross model is derived assuming that the interest rate is constant. True or False

Notice the major differences between our Keynesian Cross (in your chapter 9 appendix) and the Macro Equilibrium (AS and AD) diagram? Which model has more to offer in which situations?

Egypt authorities faced significant health and economic policy challenges during the COVID19 Pandemic, shutting down certain industries to protect public health. This shutdown resulted in almost 1 million jobs lost in April and May 2020, and a dramatic fall in consumers’ and firms’ confidence to spend and invest. Describe the effect that a fall in confidence had upon output in the Egypt economy using a Keynesian model of the macroeconomy. Ensure that your analysis includes the following:(i) the components of expenditure that are affected and why;(ii) the adjustment process associated with moving from an initial equilibrium (before the onset of the pandemic) to a new equilibrium (after the significant job losses), i.e. the mechanism that leads to a change in output (including a relevant diagram);(iii) an explanation of what the multiplier is and its role in explaining the fall in output; and(iv) a discussion of the policy actions that can restore aggregate demand to its initial level.

Assume the economy operates in the intermediate range of aggregate supply curve. Using the AS/AD model, discus the impact of the following events on the price level and real GDP, and provide relevant figures. a) The recent oil production cut by OPEC and its allies, including Russia, disrupted the global oil market. b) An expansionary monetary policy on which the interest rate is lowered.

Explain the concept of “Divine Coincidence” and clearly state the cases where it holds and where it does not hold in the New-Keynesian model.

In the Keynesian short-run macro model, a fall in the money supply will a)move the economy to the left along the aggregate expenditure line. b)shift the aggregate expenditure line downward. c)move the economy to the right along the aggregate expenditure line. d)shift the aggregate expenditure line upward. e)cause the aggregate expenditure line to rotate until it is flat.

Consider a standard Keynesian model but with two types of consumers, Type A who have low marginal propensities to consume and Type B who have high marginal propensities to consume. An economy with relatively more Type A consumers is more vulnerable to a negative shock to investment demand.Answer true, false, or uncertain. Please briefly explain your answer.

explain the basic principles of the New Keynesian Economics and how it addresses perceived limitations to classic Keynesian theory.

Which of the following is true the dynamic AS-AD model? The dynamic aggregate demand curve is downward sloping because the central bank follows the Taylor principle. An increase in the natural level of output increases the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate by less than one for one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic aggregate supply curve.