Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 15, Problem 5RQ
To determine
The key assumption in the DSGE model.
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Macroeconomics (Fourth Edition)
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- In long run macroeconomic models the effects of exogenous shocks, price rigidities and expectational errors are fundamental ingredients. True or Falsearrow_forwardPlease use classical model AD-AS analysis (i.e. state AD, SRAS or LRAS shift rightward or leftward) to predict the impacts on price level and real GDP in the U.S. for each the following event: (a) Government increases defense spending (b) Virus pandemic damages all the statesarrow_forwardThe Canadian economy suffered two major shocks in 2008, leading to the severe recession of 2008–2009. One shock was related to oil prices; the other was the slump in both consumer and business confidence. This question analyzes the effect of these two shocks on GDP using the AD–AS model. Draw typical aggregate demand and short-run aggregate supply curves. Label the horizontal axis “Real GDP” and the vertical axis “Aggregate price level.” Label the equilibrium point E1, the equilibrium quantity Y1, and equilibrium price P1. Would an increase in oil prices cause a demand shock or a supply shock? Redraw the diagram from part (a) to illustrate the effect of this shock by shifting the appropriate curve. The New Housing Price Index, published by Statistics Canada, calculates that Canada’s home prices fell by an average of 3% in the 12 months between April 2008 and April 2009. Business fixed capital formation fell by 19% during the same period. Would the fall in home prices and business…arrow_forward
- Question 1: Evaluate the importance of AD/AS models from a macroeconomic standpoint and analysis. Questions 2: identifying periods of economic growth and recession using the AD/AS models.arrow_forwardMacroeconomic forecasts from different computer models are usually Very different because the models are based on different data sets, different assumptions, and different macroeconomic theories. Very similar because the models use the same data, and standardized assumptions so it does not matter whether a supply-side economist or a Keynesian economist conducts the research. Very similar because the models must conform to high government regulatory standards. About the same because political objectives never conflict with good economic policies. Very different because it is impossible to determine who funded the research.arrow_forwardConcept of Hysteresis suggests that the economic shocks affect the economy only for a short time period. True or false, justify your response in either case:arrow_forward
- Q1: Consider the IS-LM model. Suppose the economy of Economica is initially at the general equilibrium. This year, the weather in Economica is extremely good. a. Explain and show graphically how a good weather shock affects the labor, goods, or the asset market. b. Explain and show graphically how a good weather shock affects the short-run equilibrium. c. Explain and show graphically how a good weather shock affects the general (long-run) equilibrium.arrow_forwardAssess the impact of the Covid-19 pandemic on the Canadian economy in the context of the Mundell-Fleming model. Consider both the Covid-19 shocks and the policy responsesarrow_forwardRelating DSGE and AS/AD for a shock to government purchases: Consider thecomplete dynamic response of the economy to a temporary rise in governmentpurchases in the AS/AD framework.(a) Draw the AS/AD graph associated with this shock.arrow_forward
- What are the sources of determinants of energy price shocks.arrow_forwardWhich of the following is a statement that you would AGREE with? Explain why. Use the AD-AS model. Assume the ceteris paribus assumption holds in all cases and that the economy is initially in short run macroeconomic equilibrium. 1. We observe a decrease in the price level and a decrease in real GDP. A possible explanation is an increase in expected future income or decrease in interest rates. 2. We observe a decrease in the price level and a decrease in real GDP. A possible explanation is an expansionary monetary policy or an increase in government spending. 3. We observe an increase in the price level and an increase in real GDP. A possible explanation an increase in expected future profit or an expansionary fiscal policy.arrow_forwardUsing the 3-equation model and provide a detailed period by period description of theadjustment process for the following scenario:The economy is hit by a permanent positive aggregate demand shockarrow_forward
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