How would the effect of an increased desire to save differ from your answer above, in thecontext of the IS–LM model?

How would the effect of an increased desire to save differ from your answer above, in thecontext of the IS–LM model?


ECN 207 study questions Some of the following questions (or ones broadly like them) are likely to appear on the final exam. • In the context of the multiplier model (see http://users.wfu.edu/cottrell/ecn207/ multipliers.pdf) analyze the effects of an increase in households’ desire to save (which can be represented by a fall in either a or b in the multiplier-model formula). What will happen to Y , T , (G − T), and unemployment? • How would the effect of an increased desire to save differ from your answer above, in the context of the IS–LM model? • How does the effect of an increased desire to save differ from the above, in the context of the Solow growth model? • “The Solow growth model implies that poor countries should tend to catch up with richer ones.” Does it? Explain your answer. • Explain why long-term interest rates are usually higher than short-term rates. And what’s going when this is reversed (that is, short-term rates are higher)? • Why do you suppose the Fed has a target rate of inflation of 2 percent? Why not zero percent? • In relation to the Taylor rule equation, RF = c + a(π − π∗)+ b(u− u∗): 1. Give an interpretation of the term c. What sort of changes in the macroeconomy might call for a change in the value of c? 2. Explain the rationale for the “Taylor principle,” namely the requirement that the coeffi- cient a should be greater than 1. • Under what conditions would you “trust” the predictions of the classical macro model?
May 25, 2022
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