ps2_w10

# ps2_w10 - Econ 202 Winter 2010 Problem set 2 Due Tuesday...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Econ 202, Winter 2010 Problem set 2 Due: Tuesday January 26 1. The basic short run model of the text book takes the form ~ Y t = & a & & b ( R t & & r ) R t & & r = & m ( & t & &) & t = & t & 1 + & v ~ Y t (a) Brie&y explain in words what each equation represents. (b) Derive the aggregate demand curve. What is its slope? Does an increase in & m make the AD curve steeper or &atter? Why? 2. To better capture the delay between changes in interest rates and e/ects on aggegate spending, suppose the basic model is modti¡ed to take the form ~ Y t = & a & & b ( R t & 1 & & r ) R t & & r = & m ( & t & &) & t = & t & 1 + & v ~ Y t + & o t (a) Derive the AD curve. (b) Suppose & a = 0 : 01 , & b = 0 : 75 , & r = 0 : 01 , & m = 0 : 5 , & = 0 : 01 , and & v = 0 : 4 . If this economy starts out with ~ Y t = 0 and & o t = 0 , what is R t & 1 , & t , and R t ? (c) Now suppose & o t +1 = 0 : 05 and then returns to for t + 2 , t + 3 , ..... Plot the response of the output gap, in&ation, and the real interest rate for periods t + 1 to t + 40 (use a spreadsheet such as excel to do this ¢don£t do it by hand).this ¢don£t do it by hand)....
View Full Document

## This note was uploaded on 09/29/2010 for the course ECON 202 taught by Professor Ravenna,f during the Winter '08 term at UCSC.

### Page1 / 3

ps2_w10 - Econ 202 Winter 2010 Problem set 2 Due Tuesday...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online