Keynesian transmission mechanism and monetary transmission mechanism.
Explanation of Solution
The Keynesian transmission mechanism states that an increase in money supply affects the aggregate
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Chapter 15 Solutions
Macroeconomics
- Our earlier model focused on the most basic trade-off introduced by the policy. One aspect of the policy that is also heavily debated is the fact that not every household can afford to upgrade their car in order to avoid paying the ULEZ fees. We now want to understand how best to design the scrappage scheme, which subsidises changing cars for those who need it the most. In particular, we want to know whether the scrappage scheme can create a moral hazard problem. To guide our analysis, consider the following simple model. The government would like to introduce a subsidy to help citizens who need their car for work and cannot afford to buy a ULEZ-compliant car. It also wants to ensure that only citizens who need to drive their car regularly use the subsidy. Instead of the two groups of citizens discussed above, we focus on one particular citizen who does not drive very often, only once a year. As a result, this citizen does not emit excessive pollution even with a car that is not…arrow_forwardThere are four key relationships upon which the Standard Model is based. Please list each of the four relationships and give one example for eacharrow_forwardTrue or false? According to the Grossman model, if a new drug were discovered that eliminated the steady deterioration of health that accompanies aging – but does not eliminate sudden events like heart attacks or being hit by a bus – then the demand for jelly donuts, french fries, and physical activity in the presence of buses would decline. Justify your answer.arrow_forward
- Explanation with answerarrow_forwardThe Akerlof model can be used to model the health insurance market. In this market, which party is analogous to car buyers? Which party is analogous to car sellers?What would it mean for the health insurance market to unravel?arrow_forwardIsabella understands that if she were to play golf, she would be able to spend time outdoors (where she likes to be) with people she enjoys. However, because she has taken golf lessons 10+ times and still cannot hit the golf ball, she does not believe that she can actually play golf. Based on what you know about Expectancy Theory, will she join her friends to play golf this summer? Group of answer choices Yes. Instrumentality and Valence are high. No. Valence is too high. No. Expectancy is low. Yes. Instrumentality is high.arrow_forward
- Suppose you are designing an intervention to increase daily physical activity among adults. Describe how you would draw on concepts from behavioral economics to design the intervention.arrow_forwardWho detected the endowment effect first? Tell us about the design of the experiment and its main conclusions.arrow_forwardWe learned that we can use choice between a gamble over someone's best and worst outcomes and getting an outcome of interest (like getting pizza) for certain as a way to assign numeric values to utility (on a scale of 0 to 1). Using this method, if you are indifferent between the following: A gamble that has a 0.3 chance of your best possible outcome (and no lower chance), and a 0.7 chance of your worst possible outcome. Getting pizza for certain. it means that your utility for getting pizza is:arrow_forward
- Indicate whether the statement is true or false, and justify your answer.According to the Grossman model, people choose an optimal time to die (barring any unforeseen accidents).arrow_forwardExercise 1.12. Consider the following game. There is a club with three members: Ann, Bob and Carla. They have to choose which of the three is going to be president next year. Currently Ann is the president. Each member is both a candidate and a voter. Voting is as follows: each member votes for one candidate (voting for oneself is allowed); if two or more people vote for the same candidate then that person is chosen as the next president; if there is complete disagreement, in the sense that there is exactly one vote for each candidate, then the person from whom Ann voted is selected as the next president. (a) Represent this voting procedure as a game frame, indicating inside each cell of each table which candidate is elected. (b) Assume that the players' preferences are as follows: AnnAm Carla Ann Bob, Carla Bob Ann, Bob Carla Ann Caria Carla. Using utility values 0, 1 and 2, convert the game frame into a game. (c) Apply the IDWDS to the game of part (b). Is there a weak iterated…arrow_forwardSuppose a person chooses to play a gamble that is free to play. In this gamble, they have a 10% chance of $100.00, and a 90% chance of nothing. Their utility function is represented in the following equation: U=W 1/2 where W is equal to the amount of "winnings" (or the income). Suppose now Brown Insurance Company offers the person the option of purchasing insurance to insure they will win the $100. What is the minimum amount Brown Insurance would charge you to insure your win? 0.90 O. 99 01 O 10arrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning