Suppose, in the second model in this chapter, with production and investment, that there is an increase in credit market frictions, as studied in Chapter. What are the effects on aggregate output and the current account surplus? Comment on these effects, as they relate to U.S. experience during the financial crisis and the recent recession.
Answer to relevant QuestionsFrom Figures, determine and discuss how fluctuations in the nominal interest rate and inflation have contributed to fluctuations in the real interest rate from 2000 to 2012. Suppose that there is a cost to carrying out transactions in the foreign exchange market. That is, to purchase one unit of foreign currency requires e(1 + a) units of domestic currency, where e is the nominal exchange rate ...Suppose a flexible exchange rate. There is an increase in the degree of uncertainty in credit markets, which affects firms but not consumers, as considered in Chapter 9.(a) Determine the effects on aggregate output, the ...As an alternative to the economy depicted in Figure, suppose that there are three types of people, but now the person who consumes good 1 produces good 3, the person who consumes good 2 produces good 1, and the person who ...Alter the Diamond-Dybvig model in the following way. Suppose that there are two assets, an illiquid asset that returns 1+r units of consumption goods in period 2 for each unit invested in period 0, and a liquid asset that ...
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