Consider the following model: Y=C[(1-t)Y]+1(i)+G L(Y,i)=M/P Y=F(N,K) W=P.FN(N,K) W(1-1)=PS(N) a. Classical model is consistent under the...

  

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Consider the following model: Y=C[(1-t)Y]+1(i)+G L(Y,i)=M/P Y=F(N,K) W=P.FN(N,K) W(1-1)=PS(N) a. "Classical model is consistent under the assumption of infinite elasticity of speculative money demand" True or false. Explain with the help of above model. b. What do you mean by Adaptive expectations. It is claimed that under Adaptive expectations hypothesis, private agents perfectly anticipate policy. The result is that the short-run implications of policy become more similar to the long- run implications of policy in the model. Do you agree? Explain. c. Graphically explain the consequences of reducing the inflation under rational expectation hypothesis if the authorities are mistaken in believing that expectations are rational or if their stated intention of holding lower monetary growth rate is not believed in by the private agents. Consider the following model: Y=C[(1-t)Y]+1(i)+G L(Y,i)=M/P Y=F(N,K) W=P.FN(N,K) W(1-1)=PS(N) a. "Classical model is consistent under the assumption of infinite elasticity of speculative money demand" True or false. Explain with the help of above model. b. What do you mean by Adaptive expectations. It is claimed that under Adaptive expectations hypothesis, private agents perfectly anticipate policy. The result is that the short-run implications of policy become more similar to the long- run implications of policy in the model. Do you agree? Explain. c. Graphically explain the consequences of reducing the inflation under rational expectation hypothesis if the authorities are mistaken in believing that expectations are rational or if their stated intention of holding lower monetary growth rate is not believed in by the private agents.