This topic contains a solution. Click here to go to the answer

Author Question: Comment on the ability of a credible nominal anchor to allow policy makers to exploit a short-run ... (Read 72 times)

abc

  • Hero Member
  • *****
  • Posts: 543
Comment on the ability of a credible nominal anchor to allow policy makers to exploit a short-run trade-off between unemployment and inflation.
 
  What will be an ideal response?

Question 2

In the text, the equivalence of the goods market equilibrium in the IS model to the equilibrium in which desired investment equals desired saving is demonstrated, assuming that both government purchases and net exports are zero.
 
  Demonstrate the equivalence when both G and NX are non-zero.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

ndhahbi

  • Sr. Member
  • ****
  • Posts: 390
Answer to Question 1

In the wake of a negative supply shock, policy makers may wish to implement expansionary policy to reverse the decline in economic activity. If this is understood as a temporary, emergency measure, rather than an abandonment of a commitment to price stability, expected inflation may decline even as aggregate demand is rising. However, under normal circumstances, any attempt to reduce unemployment and tolerate an increase in inflation will not be supported by credibility. On the contrary, such a policy must signal a lack of commitment to price stability; the loss of credibility confirms the illusory nature of the trade-off.

Answer to Question 2

In terms of output and expenditures, the equilibrium condition is Y = C + I + G + NX. Rearranging terms, Y - C - G = I + NX. For households, saving is Y - T - C. Government saving is T - G. National saving S = Y - T - C + T - G = Y - C - G. Substituting into the equilibrium equation, S = I + NX. Now, the combined saving by households and the government may be greater or less than investment, with the difference made up by a capital outflow (NX > 0 ) or capital inflow (NX < 0 ), respectively.




abc

  • Member
  • Posts: 543
Reply 2 on: Jun 30, 2018
:D TYSM


deja

  • Member
  • Posts: 332
Reply 3 on: Yesterday
Excellent

 

Did you know?

Cytomegalovirus affects nearly the same amount of newborns every year as Down syndrome.

Did you know?

The lipid bilayer is made of phospholipids. They are arranged in a double layer because one of their ends is attracted to water while the other is repelled by water.

Did you know?

The term pharmacology is derived from the Greek words pharmakon("claim, medicine, poison, or remedy") and logos ("study").

Did you know?

The types of cancer that alpha interferons are used to treat include hairy cell leukemia, melanoma, follicular non-Hodgkin's lymphoma, and AIDS-related Kaposi's sarcoma.

Did you know?

The first oral chemotherapy drug for colon cancer was approved by FDA in 2001.

For a complete list of videos, visit our video library