Use the LOE model in the SR to answer the questions below. Suppose the U.S. economy started from an equilibrium point, i
Posted: Sun Jun 05, 2022 4:39 pm
Use the LOE model in the SR to answer the questions below.
Suppose the U.S. economy started from an equilibrium point, in
February 2020.
Show how the corona virus shock at first affected the economy,
starting in March. Use economic reasoning and graphs. That is, show
how the lockdown affected consumption, sales, employment,
production, real interest rates, and prices in the short run. In
the IS-LM model, which curve shifted and to which direction? Show
the initial equilibrium point and the new equilibrium point.
Now, consider that the U.S. Central Bank (Federal Reserve
Board) quickly decided to implement monetary policy to help the
economy, starting already in March (short inside lag). Which policy
or policies did the Central Bank pursue? Which open market
operation? And which credit policy? What is the effect of this
policy on real interest rate? In the IS-LM model, which curve
shifted and to which direction? Show the change redrawing the
diagram from a)
Now, consider that the U.S. government (President and Congress)
decided as quickly as possible to implement fiscal policy to help
the economy, starting in April (longer inside lag). Which policy or
policies did the U.S. government pursue? What is the effect of this
policy on real interest rate? In the IS-LM model, which curve
shifted and to which direction? Show the change redrawing the
diagram from b)
Which policy is more effective in the short run?
Suppose the U.S. economy started from an equilibrium point, in
February 2020.
Show how the corona virus shock at first affected the economy,
starting in March. Use economic reasoning and graphs. That is, show
how the lockdown affected consumption, sales, employment,
production, real interest rates, and prices in the short run. In
the IS-LM model, which curve shifted and to which direction? Show
the initial equilibrium point and the new equilibrium point.
Now, consider that the U.S. Central Bank (Federal Reserve
Board) quickly decided to implement monetary policy to help the
economy, starting already in March (short inside lag). Which policy
or policies did the Central Bank pursue? Which open market
operation? And which credit policy? What is the effect of this
policy on real interest rate? In the IS-LM model, which curve
shifted and to which direction? Show the change redrawing the
diagram from a)
Now, consider that the U.S. government (President and Congress)
decided as quickly as possible to implement fiscal policy to help
the economy, starting in April (longer inside lag). Which policy or
policies did the U.S. government pursue? What is the effect of this
policy on real interest rate? In the IS-LM model, which curve
shifted and to which direction? Show the change redrawing the
diagram from b)
Which policy is more effective in the short run?