Macroeconomics (7th Edition)
Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 18, Problem 18.5.5PA

Subpart (a):

To determine

The expansionary fiscal policy effect on real GDP in closed economy and open economy at short-run.

Subpart (b):

To determine

The expansionary fiscal policy effect on real GDP in closed economy and open economy at short-run.

Subpart (c):

To determine

Impact of increasing interest rate of the major trading partner.

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Problem 3. An economist writing a column in a well-known paper makes the following announcement. "There are good news and bad news. The good news is Turkey had a temporary beneficial productivity shock that will increase output; the bad news is that the increase in output and income will lead domestic consumers to buy more imported goods, and our current account balance will fall." Assuming that Turkish economy is a small open economy, analyze this statement (is it true or false?, why?) taking as given that a beneficial productivity shock has indeed occurred. Problem 4. Plot MPKf vs. K+1 graph. Explain why the slope of the curve is as you plot. Using this graph explain how Kr+1 and It will change with the following changes. Make the analysis separately for each event. a) Future value of total factor productivity is expected to increase. b) The tax rate on revenues of the firms decreases. c) Relative price of capital goods increases. d) Expected real interest rate increases.
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