In the example (“Limited Commitment and Market Interest Rates”), suppose that t < (v – y')y/y'. Also suppose that t falls. What effect will this have on the market real interest rate, and on consumption? Explain.
Answer to relevant QuestionsUse the social security model developed in this chapter to answer this question. Suppose that the government establishes a social security program in period T, which provides a social security benefit of b (in terms of ...Tom lives on an island and has 20 coconut trees in the current period, which currently produce 180 coconuts. Tom detests coconuts, but he can trade them with people on other neighboring islands for things that he wants. ...Suppose that there is a permanent increase in total factor productivity. Determine the implications of this for current macroeconomic variables, and show how the impact differs from the case where total factor productivity ...Suppose that the nominal interest rate is zero, that is, R = 0.(a) What is the equilibrium quantity of credit card balances?(b) In what sense does the economy run more efficiently with R = 0 than with R > 0?(c) Explain your ...In the real business cycle model, suppose that firms become infected with optimism and they expect that total factor productivity will be much higher in the future.(a) Determine the equilibrium effects of this.(b) If waves ...
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