Consider the real business cycle model, as we studied in the setting of a complete real...

 

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Consider the real business cycle model, as we studied in the setting of a complete real intertemporal model for a closed economy, with consumers, producers, government, and the money market. Suppose there is a news that oil price is going to decrease in the future. [1] Illustrate the money market of this economy in a diagram to explain all appropriate course of actions for the monetary authority if their target is to stabilize the price level in this economy. [2] Add brief comments about changes relating to output, interest rate, and money demand to support your answer in [1]. [3] Evaluate whether the following statement is True/False/Uncertain: "According to real business cycle theorists, central bank's action could lead to a decrease in the nominal money supply due to stabilizing real output and the expansion of deposit money". Clearly write your response and provide required explanation. Consider the real business cycle model, as we studied in the setting of a complete real intertemporal model for a closed economy, with consumers, producers, government, and the money market. Suppose there is a news that oil price is going to decrease in the future. [1] Illustrate the money market of this economy in a diagram to explain all appropriate course of actions for the monetary authority if their target is to stabilize the price level in this economy. [2] Add brief comments about changes relating to output, interest rate, and money demand to support your answer in [1]. [3] Evaluate whether the following statement is True/False/Uncertain: "According to real business cycle theorists, central bank's action could lead to a decrease in the nominal money supply due to stabilizing real output and the expansion of deposit money". Clearly write your response and provide required explanation.