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tutorial8questions - i Derive today&s LM curve...

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EC2102 Macroeconomic Analysis I Tutorial 8, Week 12, April 4-8, 2011 Due to the ongoing recession in Country S you have been hired as an Economic Advisor to the Government due to your familiarity with the Keynesian IS/LM-AS/AD framework where nominal wage rate is sticky. PART A Since no one else you are working with is familiar with this framework, you have to: ( i ) explain how to derive the AS curve; and ( ii ) explain how to derive the AD curve. ( Note : For part ( ii ) you do not have to separately derive the LM curve. ) You are having a conversation with your friends who do not seem to have learnt the Keynesian IS-LM/AS-AD model, so you want to teach them this model.
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Unformatted text preview: ( i ) Derive today&s LM curve explicitly. ( ii ) Explain what today&s IS curve is constituted of. Question 3 Suppose that the nominal interest rate could be zero in the Keynesian sticky wage model. ( i ) Derive today&s liquidity money, the LM 1 ; curve, paying particular attention to that part of the LM 1 curve when nominal interest rate is zero. ( ii ) If the central bank tries to increase current money supply when the current nominal interest rate is zero, what are the equilibrium e±ects of this today? Explain carefully using graphs. ( iii ) Recently, nominal interest rates have been at, or close to, zero in Japan. What implications does this have for the Japanese monetary policy. 1...
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