Econ402_Set7 - PS 7 Keynesian Business Cycle Theories (60...

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PS 7 – Keynesian Business Cycle Theories (60 raw points) ECON 402, Prof. Bachmann Due: March 17 Explain all your answers. “Results only” means partial credit only. Staple and write legibly. No spiral stuff. Write on the top of the front page of the assignment you hand in: name, section number, section time and section GSI. The numbers in brackets are the subdivision of raw points for each question. Persistent Negative Technology Shocks in Keynesian Economies (60) In this problem you will analyze the effects of a persistent negative technology shock mainly in a Keynesian sticky nominal wage economy. Assume to this end that both z and z’ decline, but z by more. Hint 1: you may use the same diagram in 1) and 3) to 5), as long as you make clear, which curve is which. Different colors may be useful. Hint 2: unless otherwise stated, explanations for shifts in curves or changes in variables can be simple “arrow chains”, like: “X ↑→ YZ curve rightward” or “X ↑→ Y ”. 1)
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