Suppose in the New Keynesian open-economy model, that there is a positive output gap. There is also a liquidity trap at the world level, in that r* = 0. Is there anything that economic policy can do to close the output gap? If so, what? Explain.
Answer to relevant QuestionsIn Figure, discuss the severity of the 2008–2009 recession relative to previous recessions.Consider an economy with a corn producer, some consumers, and a government. In a given year, the corn producer grows 30 million bushels of corn and the market price for corn is $5 per bushel. Of the 30 million bushels ...Consider the absence-of-double-coincidence economy depicted in Figur. Determine who would trade what with whom if good 2 were used as a commodity money. Explain your results.Suppose that consumers are concerned about theft, and so they are willing to use banks for some of their transactions even if the nominal interest rate is zero. Further, suppose that, the more currency consumers hold, the ...Suppose that the private sector does not have rational expectations, but instead follows an adaptive expectations scheme. That is, the private sectors expected inflation rate is what the inflation rate was last period. Show ...
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