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Unformatted text preview: Output should increase by Okun's law c. It hasn't been, potential isn't affected d. Cyclical Question 4 a. MPC = 1/2; IE=1/(1-(1/2))=2 b. Unplanned investment (I_u) which is the intercept, $2 tr. c. The intercept of PAE line and 45 deg line given by 2+1/2Y=Y so Y=4. So potential output is $6 tr. d. C and I_p are autonomous expenditure. Since IE Multiplier is 2, must increase autonomous expenditure by $1 tr Question 5 a. Output will decrease increase , so they may lose value as investment falters. b. $1 bb * 1/(1/5) = $5 c. Fed’s commitment to fight inflation / a monetary policy rule d. Giving money – increasing the money supply drives down interest rates; the money demand curve is downward-sloping...
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This note was uploaded on 02/04/2011 for the course ECON 3 taught by Professor Peters during the Spring '07 term at UCSD.
- Spring '07