Within the Keynesian model with both a flexible price and flexible money wage, illustrate graphically and explain the effect of a decline in expectations. Include in your answer the effects of this policy shift on real output, the price level, employment, the money wage, and the interest rate. Explain what this question has to do with the typical Keynesian view of what causes recessions.

Lucas's critique, based on rational expectations, argues that it is not enough to use econometric models to evaluate policy. In this regard, explain the comparison of the new classical macroeconomic model, the new Keynesian model and the traditional model on the impact of rational expectations on the aggregate economy!

Which of the following would cause the dynamic DAD curve to shift in (back)? A) a decrease in consumer confidence. B) a decrease in the inflation rate. C) an increase in consumer wealth. D) an increase in the short-run aggregate supply (SRAS) curve.

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.

Discuss the Lucas Critique of traditional structural Keynesian macroeconomics. Explain why the Euler Equation below is immune to the Lucas critique and explain its main implications for household consumption. u' (C₁) = (1 + 1) E₁u' (C (+1) Ct is consumption at time t and C++1 is consumption in the next period p> 0 is the rate of time discount (degree of impatience) i is the fixed interest rate on a risk free asset Et is the expectation at time t (today)

In a certain economy, the Dynamic Aggregate Supply (DAS) line is represented by the function = - π₁ = Ę ₁ = ₁ π + α ( Y₁ − Ÿ) + D and the inflation expectations formation mechanism is adaptive, that is, E₁+1 Absent a supply shock (v₁ = 0), in a figure representing period t inflation rate, π, on the vertical axis, and period t output, Y₁, on the horizontal axis, the period t DAS line will pass through the pair of points, : OA. (-1) B. (α, Y) ○ C. (Y) D. (πt, Yt)

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.

Consider the AD-AS model: Y = Y* ay (π = π*) + ED ㅠ π = π² + 08 (Y-Y*) + €s Suppose the parameter values are a = = 0.02 0.5, y = 2, p = 0.5, B = 2 with inflation target * and natural output normalized to Y* = 1. Suppose the economy begins in an initial long run equilibrium.

Explain the role of supply-side policies in the macro-economy. In the context of your analysis distinguish between New Classical and Keynesian approaches to supply side policies. Illustrate your answer with appropriate diagrams.

Suppose policymakers announce their intentions to lower the inflation rate and adopt policy changes to slow nominal GDP growth. Describe, in terms of the SP model, the effects on the economy’s output ratio, unemployment rate, and inflation rate under each of the following cases. (a) The public finds this announcement credible, and policymakers stick to their announced policies. (b) The public finds this announcement credible, but policymakers abandon their announced policies and leave the growth rate of nominal GDP unchanged. (c) The public does not find this announcement credible, but policymakers do stick to the announced policies. (d) The public does not find this announcement credible, and policymakers abandon their announced policies and do not lower the growth rate of nominal GDP.