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Unformatted text preview: Econ 154b Yale University Spring 2005 Prof. Tony Smith HOMEWORK #7 This homework assignment is due at the beginning of lecture on Monday, April 4. 1. Do numerical problem #3 on p. 425 in Chapter 11 of the textbook. When working this problem, remember that Y = C d + I d + G , i = r + e , and that, in equilibrium, real money demand L equals real money supply M/P . In addition, before working the problem, you may find it helpful to read carefully Box 11.2 on pp. 419 and 420 in Chapter 11 of the textbook. 2. Do analytical problem #1 on p. 426 in Chapter 11 of the textbook. To determine your answers, use the Keynesian model with a rigid real wage and sticky prices. For each case, determine how the economy responds both in the short run (before prices adjust) and in the long run (after prices adjust). In addition, answer each question using both an IS- LM diagram and an AD- AS diagram. 3. (a) Suppose that a reduction in aggregate demand shifts the AD curve back (or to the left), sending the economy into a recession, as predicted by the Keynesian...
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This homework help was uploaded on 04/06/2008 for the course ECON 154 taught by Professor Bjoernbruegemann during the Spring '07 term at Yale.
- Spring '07