# Problem Set 7 For Macroeconomics. Government Savings, IS-FE-AM Graph - Columbia Sipa ECON - Assignment

1183 words - 5 pages

Macroeconomic Analysis for International and Public Affairs U6401
Problem Set 7
Due on April 2 at 6:00pm
1. Please drop your homework in mailboxes 7 or 10 in the 6th-floor mail room, close to the Office of Student Affairs.
2. You only have to submit ONE homework paper per group.
3. Please make sure you write both first and last names of each group member on the first page of the homework paper.
4. While your answers should be typed, you do not have to draw the graphs in Word or Excel.
Just take pictures of your hand-drawn graphs and paste them to your problem set paper before printing
Question 1
In this question, assume that Brazil is a closed economy.
The table below illustrates some indexes of real macroeconomic data from Brazil (1995 = 100).
Quarter 1
2015
Quarter 2
2015
Quarter 3
2015
Gross Domestic Product 172 168 166
Personal Consumption Expenditures 180 177 174
Gross Private Domestic Investment 176 161 155
a)
1. During this time, is Brazil experiencing a recession or an expansion?
Consider the following alternative explanations for the Brazilian cycle during this time.
First Explanation: The Brazilian cycle is only driven by a drop in consumers’ optimism about the future.
Prices are sticky.
b)
1. Illustrate the short run effects of this shock on the goods market graph, the asset market graph and the
IS-LM-FE graph. Indicate with A and B, respectively, the equilibrium before and after the shock.
2. Which of the variables on the table above are consistent and which are inconsistent with the first
explanation?
Second Explanation: The Brazilian cycle is only driven by a contraction in real money supply.
c)
1. Illustrate the effects of this shock on the goods market graph, the asset market graph and the IS-LM-FE
graph. Indicate with A and D, respectively, the equilibrium before and after this shock.
2. If a curve shifts, explain – in no more than one line -why it shifts
3. Which of the variables on the table above are consistent and which are inconsistent with the second
explanation?
d)
1. Using an IS-LM-FE graph (and this graph only) illustrate the combined short-run and long-run effects of
an i. exogenous reduction in full employment GDP (due to a drop in oil prices)1 together with ii. an
exogenous reduction in consumption if the combined two shocks cause P to increase in the long run.
Assume that, before these two shocks, the Brazilian economy was at full employment. Indicate with A,
B and C, respectively, the equilibrium before the two shocks, the short-run equilibrium and the long-run
equilibrium.
2. Under these circumstances, can you unambiguously predict the effects of these two shocks on
investment in the long run (from equilibrium A to equilibrium C)? Explain (there is no need to draw
any graph).
During 2015, Banco do Brasil – the Brazilian Central Bank – implemented a monetary policy to prevent prices
from increasing in the long run.
e)
1. If this policy was attained through open market operations, should Banco do Brasil have purchased or
sold assets?
Suppose that a contraction in full-employment GDP due to a drop in oil prices causes an increase in expected
inflation in Brazil. Disregard any exogenous consumption shock.
f)
1. How would an increase in expected inflation affect Brazilian nominal interest rates and real interest rates
in the short run?
2. How would an increase in expected inflation together with a drop in full-employment GDP affect
Brazilian nominal interest rates and real interest rates in the long run? Explain.
Question 2
Throughout this question, assume that Japan is a closed economy.
Suppose that you only know that the Japanese national saving increases.
a)
1. Is it possible that this increase in saving is associated with an increase in GDP? Explain in no more than
one sentence.
2. Is it possible that this increase in saving is associated with a drop in GDP? Explain in no more than one
sentence.
The Japanese government was expected to increase taxes in April 2017.
b)
1. Could the increase in taxes (assuming that they are lump-sum) have had no effect on the Japanese
consumption? Explain in no more than one sentence.
2. Following what we discussed in our course, provide two reasons for which the Ricardian equivalence
does not hold in the real world.
1 The oil industry represents 13% of the Brazilian GDP
Suppose that the Japanese Government increased lump-sum taxes in April 2017.
c)
1. Assuming that the Ricardian equivalence does not hold, how would the increase in lump-sum taxes have
affected i. national saving, ii. government saving and iii. consumption in the short run?
2. Illustrate the short-run effects of this tax increase on the Japanese saving and investment graph. Indicate
with A and B, respectively, the equilibrium before and after this shock.
3. If the Japanese investment is very sensitive to changes in the real interest rate, would short-run GDP
have responded more or less to the tax increase? Explain.
Suppose that in April 2017 the risk on Japanese Government bonds dropped.
d)
1. How would this drop in risk, and this shock only, have affected the Japanese i. consumption and ii.
saving in the short run?
2. Illustrate the short-run effects of this drop in risk on the Japanese asset markets graph. Indicate with A
and B, respectively, the equilibrium before and after this shock.
Suppose that Japan was affected by two shocks in April 2017: i. an increase in lump-sum taxes (assuming that
the Ricardian equivalence does not hold) and ii. a drop in risk on bonds
e)
3. Illustrate the short-run and long-run effects of these two shocks on the Japanese IS-LM-FE graph if the
combined shocks are deflationary in the long run. Indicate with A, B and C, respectively, the
equilibrium before the two shocks, the short-run equilibrium and the long-run equilibrium. Assume that
A is at full employment.
2. Under these circumstances, can you predict whether investment increases or decreases in the short run?
3. Suppose that the Bank of Japan wants to maintain long-run output prices constant. Indicate with the
letter D, the equilibrium that the Bank of Japan wants to attain on the graph of part e1.
The increase in lump-sum taxes in April 2017 was eventually postponed.
In December 2017 the Japanese government decided to cut corporate taxes to firms that satisfy both of the
following two requirements: 1. raise wages by at least 3% (which causes full-employment GDP to drop), and 2.
make a certain amount of high-tech investment (to provide an incentive to invest).
f)
Assuming that this cut in taxes is successful on both fronts, and that the tax revenue does not change,
can you unambiguously predict whether this policy is expansionary or contractionary in the short run?
Can you unambiguously predict whether this policy is inflationary or deflationary in the long run?
initial equilibrium (at full employment), with the letter B the short-run equilibrium and with the letter C
the long-run equilibrium.

## Unit 4 Problem Set For AP Macroeconomics - AP Macroeconomics - Problem Set

852 words - 4 pages ... Zhu 2 Kevin Zhu F Block Mr. Carmer 27 February 2019 Macro Unit 4 Problem Set 1. Define and give specific examples of transaction demand for money and asset demand for money a. Transaction demand for money is people hold money for everyday transactions. For example, lunch money and bus fee would be a transaction demand. Asset Demand for Money is people hold money since it is less risky than other assets. For example, there is a recession ...

## Macroeconomics Country Analysis - RMIT - Problem Set

615 words - 3 pages ... Macroeconomics ECON 1192 - Individual Problem Set 1 Question 1 i. Turkeys GNI per capita ranked at 50th and HDI ranked at 76th out of 198 countries in 2017 (UNDP 2018a). ii. There is a large difference between GNI per capita ranking and the HDI ranking of Turkey. HDI is a composite of three indicators which are GNI per capita to evaluate the economic performance, life expectancy at birth to measure the health and expected years and means ...

## Time Value Problem Set And Answers - Umsl/finance 6500 - Assignment

828 words - 4 pages ... at your retirement age of that series of annual expenditures lasting until you die. What is that lump sum? (This is ‘The Number’ for you.) How does it compare to the guess you made at the beginning of the class? Retirement Exercise, part 3: Now that you have a savings/investment target (the number you just calculated), please calculate how much money you will need to set aside at the end of the next N years until retirement in order to ...

## This Is A Final For A Class That I Am In - COMPOSITION 2 - Paper

1122 words - 5 pages ... set, muscular fellow that is able to carry a lot more weight than my little brother and I. Around five minutes later, we are required to climb a steep hill to get to a large, algae filled lake named Lake Anita. We dropped everything a long, narrow beige dock and began to attempt to cast past the moss and catch the big one. We only stayed for about an hour because we kept catching moss rather than fish, but still happened to catch a few largemouth ...

## Question Set Up By Instructor For Students To Answer - University Of Manitoba/aboriginal Politics - Assignment

1161 words - 5 pages ... meetings, from the federal, the provincial and the territorial governments perspectives was in dual; the first was to set an agenda for the first ministers and the second is to obtain appreciation and understanding of precisely what was meant by the various proposals put forth for the Aboriginal people. But as for the Aboriginal representatives, they have something else in their mind and all they wanted is just for the government to respond to ...

## Time Graphs For Maths As A Practice Good For Maths Experience Practise Makes Perfect Am I Right? - Maths - Maths Research Assignment

669 words - 3 pages ... . …………………………………………………………………………………………………………………….. 6. A distance-time graph for an insect flying in a straight line is shown ! on the right. a) Determine how long it takes to travel between 5.0 and 10.0 m. ! ……………………………………………………………………… b) Find how far it travels between 2.0 and 4.0 s. ! ……………………………………………………………………… c) Calculate the velocity at 3.0 s. ! ……………………………………………………………………… ……………………………………………………………………… d) Convert the graph into a speed-time graph below. Page 5 ...

## Government Should Not Reduce Funding For Art - The University Of Sheffield - Assignment

2972 words - 12 pages ... encounters a fiscal deficit or the country faces an economic depression, it will affect the operation of the museum (Sheng & Chen 2012). Conclusion According to research on the literature, the relationship between art and government is always close. In the United States, the federal government has paid much attention to art funding. However, due to a set of economic depression problems, the federal government these years started to reduce the funding for ...

## Social Media Is Making Unrealistic Expectations For Women - English - Assignment

444 words - 2 pages ... , consult the checklist below to ensure you’ve met the criteria for this assignment. Today has an evolving society, there is no denying that pop culture, media and entertainment has a significant influence on us. You can’t go anywhere without seeing it. You turn on the television, and some company is marketing a new brand of clothing that is, of course, The new best thing.”Magazines have photoshopped images every other page with a line of cosmetics ...

## This Assignment Is For Unit 3 Assignemt 2 Hyae Fune - Dudley - Essay

732 words - 3 pages ... government, the bank is starting a publicity campaign to explain to the public the good work it does. You have been allocated some tasks to help prepare for a set of road show materials that are to be set up in shopping malls throughout the country. Task 1 Legal, Ethical and Operational Issues For this assignment you are required to produce three documents that contain the information that needs to be included on the different web pages. You ...

## This Assignment Is For The PHIL 201 Course - Liberty University PHIL 201 - Essay

652 words - 3 pages ... similarities. Both excerpts discuss how incredibly difficult it would be for someone to switch from the dream life to living in reality. "All of this comes as a huge shock to Neo. It is almost too much for him to accept. He experiences fear, denial, and confusion, but eventually acceptance and then sadness. He realizes that all of his “life” had been a lie. Morpheus reminds him, “I didn’t say it would be easy, Neo. I only said it would be the ...

## Custom Laws For "and That It Is Customs Makes It Law" - History 215 Wilbur Wirght - Assignment

924 words - 4 pages ... period finds themselves with the predicaments and limited opportunities for survival. Women who were concerned about helping their families in miserable situations faced limitations. On government’s act of removing cake selling business of a poor woman Trejo wrote, "I am obliged to plead to the father of us the poor, that he concedes what would be for me a fortune, that I be allowed to sell my cakes, and God will compensate you for this act of ...

## Essay That Is Supper Sis For You And All Your Friends - Heritage Glen - Assignment

1304 words - 6 pages ... time is in this phase. Malignant:​ a malignant tumor is a tumor that may invade its surrounding tissue or spread around the body. Medical Imaging Technology:​ is the technique and process of creating visual representations of the interior of a body for clinical analysis and medical intervention, as well as visual representation of the function of some organs or tissues. Meristematic cell:​ is the tissue in most plants containing undifferentiated ...

## This Assignment Is A Case Study For A Professional Financial Management Class - Missouri State/ FIN 581 - Assignment Case

768 words - 4 pages ... their kids - Michael has disability insurance and malpractice insurance that is paid for by the hospital Weaknesses: - Michelle is working and does not have any disability insurance - Neither of the Williams’ have a will set up - They have a lot of cash outflows and really depend on the \$20,000 gift from Michael’s parents - The William’s do not have any Guardianship documents in place for the children - Do not have sufficient life insurance - May ...

## The Art Assignment Is A Formal Analysis For An Assignment To A Specific Art Chosen For Art History - Art History - Formal Art

949 words - 4 pages ... focus on the way the artist arranged the composition. And for this assignment, I want you to spend the most attention with this section. In this section, go over the following components: o Is the work two-dimensional or three-dimensional? The Elements of Art The Principles of Design 1. Describe the work you chose and how the artist has used all 7 of the Elements of Art listed below. These are the formal elements that you have been studying in the ...

## Dell Case Study, Questions As To Why Lead Time Is So Long And Suggestions For Solutions - Liberty University BUSI740 - Assignment

1991 words - 8 pages ... shipped by air, the cost of air compared to shipping via water is much higher, adding on to the value that is already high (Lorenzoni, Tielemann, & Sauer, 2019). Another cost that adds onto the L5 expense is costs from third party integration done in the USA plant, which is linked to logistics and integration costs for chassis and motherboards. These costs are caused by Dell’s inability to provide motherboards on time; this then causes a breakdown ...
Other Popular Examples