Keynesian transmission mechanism and monetary transmission mechanism.
Explanation of Solution
The Keynesian transmission mechanism states that an increase in money supply affects the aggregate demand through the changes in the rate of interest or exchange rates. This would mean that there is an indirect link between the
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Chapter 15 Solutions
Economics (MindTap Course List)
- Why do people confuse correlation with causationarrow_forwardNutritional economics. Suppose we are considering a hungry individual in the Gross-man model deciding what to have for dinner. His options are listed in Table 3.2. Each dish has an effect on the level of the home good Z and health H.a. Suppose the diner’s single-period utility function is as follows: U = 3Z + HIf the diner is trying to maximize his single-period utility, and he can only select one item from Table 3.2, which meal would he choose?b. A miracle pill is discovered that halves the negative health impact of cookies. How does this impact the diner’s choice?c. What effect does the miracle pill have on the diner’s health H? Interpret this result.Does this mean the diner would be better off without the miracle pill?d. If the diner is instead trying to maximize his lifetime utility and not just his single-period utility, how might your answer to Exercise 16(a) change? Is he likely to value Z or H more in the lifetime context than the single-period context? Explain your answer, and…arrow_forwardTrigleater is a hungry individual in the Grossman model deciding what to have for dinner is looking at variable options. Trigleater has a special condition called "Eaterblood" where whatever she eats will affect her health almost immediately. The following table reflects the options she is considering and the effect on health Meal Home Good Z Health H Steak and eggs +9 -4 Kale salad and broccoli -5 +18 Double cheeseburger deluxe with coke 12 -18 If Trigleater's single period utility function is given by U=5Z+2H and she can only select one item from the table above. Allpositive is a new promising pharmaceutical company came with a new supplement "Bestofboth" that will halve the negative health effect and at the same time double the positive health…arrow_forward
- Suppose an individual in the Grossman model is trying to decide what to have for dinner. His options are as below. Each dish has an effect on the level of home good Z and health H. Мeal Home good Z Health H Steak and eggs +7 -2 Kale salad with broccoli -2 +5 Entire box of cookies +10 -20 Suppose the dinner's single-period utility function is U=3Z+H 1. If the individual is trying to maximize his single-period utility, and he can only select one item from the table (assuming he can afford any item in the table). Which meal would he choose? Explain your answer. 2. A miracle pill is discovered that halves the negative health impact of cookies. How does this impact the individual's choice? Explain your answer. 3. If the individual lives in multi-period rather than single-period, would he value Z or H more in multi-period? Explain your answer. Paragraph I U v A •.. > lili Barrow_forwardWhich of the following is an accurate definition of the problem of reverse causality? A situation when variation of the independent variable does not depend on that of the confound variable. A situation when variation of the independent variable depends on that of the depended variable. A situation in which a researcher believes that one variable influences a second variable, when in fact it is the second variable that influences the first. A situation when variation of the independent variable does not depend on that of the depended variable.arrow_forwardWhat are the shortcomings of the grossman modelarrow_forward
- 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_forwardOur 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_forwardCan you please elaborate on what incoterms are and why they're importantarrow_forward
- True 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_forward16.12. Two consumers, Ron and David, together own 1,000 baseball cards and 5,000 Pokémon cards. Let xR denote the quantity of baseball cards owned by Ron and yR denote the quantity of Pokémon cards owned by Ron. Similarly, let xD denote the quantity of baseball cards owned by David and yD denote the quantity of Pokémon cards owned by David. Suppose, further, that for Ron, MRSRxy = yR/xXR, while for David, MRSPxy = yD/2xD. Finally, suppose xR = 800, yR = 800, xD = 200, and yD = 4,200. a) Draw an Edgeworth box that shows the set of feasible allocations in this simple economy. b) Show that the current allocation of cards is not economically efficient. c) Identify a trade of cards between David and Ron that makes both better off. (Note: There are many possible answers to this problem.)arrow_forwardA company has a dental plan for its employees. According to behavioral economics, the participation rate will be about the same wether people are given en easy enrollment form to fill out or are enrolled automatically but given en easy opt-out form to complete if they don’t want to participatearrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning