Suppose that net exports, NXt, are determined by the following expression: NXt/Ȳt = αNX−βNX(rt−r∗t) (6), where Ȳt is potential GDP and rt−r∗t is the difference between the domestic and the foreign real interest rate. a. Explain the intuition behind expression (6). b. Modify the IS curve below so that (6) is taken into account. Ỹt= α − β (rt−r̃) It specifies a negative relationship between short-run output, Ỹt, and the real interest rate, rt c. Explain how a decrease in the domestic real interest rate affects short-run output in this economy.
Hi, I need answer for this question below.BR//Hassan suppose that net exports, NXt , are determined by the following expression: NXt Y¯ t = αNX − βNX(rt − r ∗ t ), where Y¯ t is potential GDP and rt − r ∗ t is the difference between the domestic and the foreign real interest rate. a. Explain the intution behind expression . b. Modify the IS curve . c. Explain how an increase in the domestic real interest rate...
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Consider the AS-AD model discussed in the course. Assume, initially, that the real interest rate only affects domestic investment. a. Write down the expressions for the AS and...
Hi, Please find some solution for this question below. I need your answer for this question very quickly.Br/H Consider the AS-AD model . Assume, initially, that the real interest rate only affects domestic investment. a. Write down the expressions for the AS and AD curves and interpret the expressions. What must be true of the model parameters and variables in the long-run equilibrium, i.e. in the steady state? b. Analyse the effects of a supply shock that causes a decrease in...
Q2)Consider two imaginary countries, indexed A and B. Each economy can be characterised by the model above, but the population is constant in both economies. In the steady state, GDP per worker in country A is 1.44 times that of country B and the ratio of physical investment to output is 0.3 in country A and 0.25 in country B. The rate of depreciation is the same in both countries. What must α be in order for the model to...
Describe the effects of contractionary monetary policy by the domestic central bank on output, the real interest rate, and net exports in both the domestic and foreign country, using a Keynesian model in the short run. What happens in the long run? (Word Limit: 100 words)
Problem 1: Consider the following GDP equation, consumption function, exports function. imports function and investment function and use them to answer the following questions Y; = C4 + 1++G+ + EX, – IM le = ā; – Õ(R4 – 7); 7 > 0 = āc + TÝ; 0<ī<1 G=ā, EX = 0 IM = 0 (a) Derive the IS curve as a relation between short run output Yt and the real interest rate gap Rt – Ť. (b) Find the...
Consider the following GDP equation, consumption function, exports function. imports function and investment function and use them to answer the following questions:Yt = Ct + It +Gt + EXt - IMt[It]/[Y[bar]t] = a[bar]i - b[bar]*(Rt - r[bar]); b[bar] > 0 C = a[bar]c* Y[bar]t G = a[bar]g * Y[bar]t EX = a[bar]ex * Y[bar]t ...
Question 9 The Taylor rule expresses the federal funds rate as the weighted average of: A. inflation and short-run output B. the unemployment rate and inflation C. he misery index, the money growth rate, and the mortgage rate D. the CPI and real GDP Question 10 The real exchange rate measures the: A. number of foreign goods one unit of domestic currency can buy B. number of foreign goods required to purchase a single unit of a domestic good C....
Part II. Short answer Question 1: Consider the following GDP equation, consumption function, exports, imports and investment function and use them to answer the following questions Y = C +1+G + EX, - IM, * = ä– Õ(Re – ); > 0 A =ão G=ā,Y, EX=0 IM = 0 (a) Derive the IS curve as a relation between short run output gap Re - F. (10 points) and the real interest rate (b) Find the government spending multiplier ) holding...
Consider the following short-run model of equilibrium in the foreign exchange market, money market, and goods market: (1) R=R∗+Ee−EE, (2) MsP=L(R,Y), (3) Y=C(Y−T)+I+G+CA(q,Y−T). All variables have the interpretation given in class (in particular, q=EP∗P is the country's real exchange rate). Suppose that the government increases temporarily its spending by ΔG. a) Explain how the endogenous variables of this model adjust to the new short-run equilibrium. b) Suppose now that the government combines the temporary increase in government spending with a...