ECON105week8and9questions - the budget deficit from the...

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QUESTION 1 Consider an economy that is in an inflationary gap. If the central bank's monetary policy is used as the long-run solution, show what happens using a MONEY graph. How does it affect debt? QUESTION 2 Imagine the economy is initially at potential. Then the government decides to use expansionary fiscal policy. (Show what happens immediately and in the short-run using an OUTPUT graph.) Are bond prices higher initially or in the short-run? Use the natural policy (doing nothing) as the economy's long-run solution. What happens to
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Unformatted text preview: the budget deficit from the short-run to the long-run? Where is investment higher: initially or in the long-run? QUESTION 3 Consider an economy that is in a recessionary gap. Let the natural long-run solution be used. What are some long-run effects on the economy? What are some possible effects on the economy in the far future (after the long-run)? ECON105 week 8 and 9 questions Eldar Sehic SFU 2009-3...
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