Consider the AS/AD model. The AS curve is: Y, = a – bm(r, - 7) and the AD curve is: T = T-1 + vY, +õ. where a is inflation and Y is short-run output. The subscript t indexes time. U = 0.01, 0 = 0.02, a = 0.04, b = 0.05, and m = 0.04 are fixed strictly positive parameters. Assume the inflation target 7 is 0.02 (or 2%). Calculate T at the steady state. (If you answer is 3%, do not put the percentage sign enter 3 or 0.03).
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- Consider the AS/AD model. The AS curve is: Ỹ, = a – bm(r, – T) and the AD curve is: T; = T;-1 + UY, +ō. t where t is inflation and Y is short-run output. The subscript t indexes time. ū = 0.01, ō = 0.02, ā = 0.04, b = 0.05, and m = 0.04 are fixed strictly positive parameters. Assume the inflation target T is 0.02 (or 2%). Calculate T at the steady state. (If you answer is 3%, do not put the percentage sign enter 3 or 0.03).Consider the short-term model characterized by the following AS and AD curves: Ý, = à – bm(x, – ñ) (AD] and A; = x; + vỶ, + õ, (AS). The economy is in steady state at time t = -1 (that is, a-1 = ñ, ō-1 = 0, and ā = 0). It is hit by a one-time inflation shock öy = .025 at time i = 0. For now, expectations are adaptive: 7 = ,-1. You'll use the answer to this question in several follow-up questions. To keep track of your results, you should use a spreadsheet application. If you don't already have one, you can use this hyperlinked template e (it's a Google Sheet). Calculate zo assuming b = 0.5, m = 2, ñ = 0.03, and ū = 1. Enter your answer as a percentage and round to the nearest hundredth.Consider the ASIAD model. The AS curve is: Y, = a - bm(n, - 7) and the AD curve is: T, = T;-1 + TỸ, +ō. where a is inflation and Y is short-run output. The subscript t indexes time. T = 0.01, 0 = 0.02, ā = 0.04, b = 0.05, and m = 0.04 are fixed strictly positive parameters. Assume the inflation target n is 0.02 (or 2%). Imagine the Bank of England decides to increase its inflation target to 0.04 (or 4%) What happens to short-run output Ỹ in the period immediately after the shock? a. increases O b. decreases Oc. stays the same
- Consider an economy producing at Ý, = 0 and ū = 1/4. The inflation rate at t = 0 is To = 3% . Now, suppose the economy is hit by an inflation shock õ1 = ö2 = 3%. The shock is temporary and ōg = 0 for t > 2. For the duration of the inflation shock, the economy is in a recession with Ý1 = Ý2 = -1%, which ends with Ý 3 = 0. Based on this information, you know that the inflation rate 73 i , percent.Consider the AD-AS model Y = Y* — ay(π − π* ) + €D - π = π² + OB(Y−Y*) + €s Suppose the parameter values are a = 0.5, y = 2, p = 0.5, ß = 1 with inflation target * = 0.02 and natural output normalized to Y* = 1. = Suppose the economy begins in an initial long run equilibrium and there is then a temporary demand shock Ep = -0.05. In the short run, immediately following this shock, output and inflation are given by: Y = 1.025, π = -0.005 Y = 0.975, π = +0.005 Y = 1.025, π = +0.005 Y = 0.966, π = -0.003Consider an AD-AS model with AD curve Y – Y* = - αγ (π - π*) + εand AS curve π = π + φβ(Y – Y*) + εwith parameter values α = 0.5, γ = 1, φ = 1, β = 0.5,and with inflation target π* = 0.02 and potential output normalised to Y* = 1.Starting from a long-run equilibrium with π = π* suppose there is a temporary demand shock ε = -0.05. Which of the following is TRUE? 1.In the short run, output is 5% below trend 2.In the short run, output is 4% below trend 3.In the short run, inflation is 1% 4.In the long run, output is 5% below trend
- In the standard AS-AD framework, after a positive one-period 0 for all timesT> t), the inflation shock at time t (that is, ō, economy will move to a new equilibrium with O because Tt+1 - Tt %3D %3D the AS curve immediately shifts such that the AS and AD curves intersect at Y = 0. Any shock is offset completely by an opposing inflation shock. the AD curve shifts each period. Changes in the rate of inflation are matched by changes in the demand parameter ā. the AS curve gradually shifts in the direction of Yt = 0. Changes in %3D inflation affect the intercept of the AS curve. the AD curve adjusts over time. Changes in expected inflation move the intercept term of the AD curve. the AS curve never shifts in response to shocks in the economy.Consider an economy producing at Yo = 0 and ū = 1/4. The inflation rate at t = 0 is TO = 3%. Now, suppose the economy is hit by an inflation shock ō1 = ō2 = 3%. The shock is temporary and ōt = 0 for t > 2. For the duration of the inflation shock, the economy is in a recession with Y = Ý2 = -1%, which ends with Y3 = 0. Based on this information, you know that the inflation rate T3 is percent. 8.5 8.5 (with margin: 0)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.
- Q.1.5 If the inflation rate is 6% and Susan receives a 6% increase in income, then, over the year, Susan's: (a) Real and nominal income both remain unchanged; (b) Real and nominal income both rise; (c) Real income rises but nominal income remains unchanged3; (d) Nominal income rises but real income remains unchanged. Q.1.6 Given the import function, Z = 300 + 2/3Y, which of the following statements is correct? (a) The marginal propensity to save is 1/3; (b) The induced component is 300; (c) 2/3 is the proportion of any income spent on imports; (d) None of the statements is correct. Q.1.7 An increase of R5 billion in income in a macroeconomy leads to an increase in R3 billion in consumption spending. From this information, we can determine that the marginal propensity to save in this economy is: (a) 0.6; (b) 0.5; (c) 0.3; (d) 0.4. Q.1.8 Mr Brown has recently been retrenched. The firm he worked for had to retrench a number of staff due to the downturn in the economy. Mr Brown has not…Consider a standard AD-AS model. The economy is affected by the following sequence of events. In period 1 there is a shock to the economy that is temporary. In period 2, the shock ends. But having observed an inflation outcome different to the inflation target, inflation expectations change from the inflation target to a value exactly equal to the observed inflation in period 1 (that is, expectations are not `anchored’). A temporary positive demand shock would lead to output above potential in period 1, but below potential in period 2. Answer true or false. Please briefly explain your answer.Consider a standard AD-AS model. The economy is affected by the following sequence of events. In period 1 there is a shock to the economy that is temporary. In period 2, the shock ends. But having observed an inflation outcome different to the inflation target, inflation expectations change from the inflation target to a value exactly equal to the observed inflation in period 1 (that is, expectations are not `anchored’). A temporary Negative demand shock would lead to output below potential in period 1, but above potential in period 2. Answer true or false. Please briefly explain your answer.