Exercise 4 Use a combination of text and drawing of figures when answering the following questions: a) Discuss the effect of an expansionary fiscal policy using the IS TR model. Why does the interest rate change and what does it mean for the Keynesian multiplier? b) How will the answer from the previous sub-question change if: i. the inflation targeting of the Central Bank became more flexible? ii. the country opens up like after a pandemic leading to more imports? c) Explain the difference between the effect of an expansionary fiscal policy using an IS- TR-IFM model comparing Norway and Denmark as examples of countries with different exchange rate regimes. d) Assume a model where actual inflation depends on 1. Underlying inflation, 2. Output gap and 3. Supply chock. Explain in a diagram with an aggregate supply curve (AS) and using numbers for each of these three factors, the outcome in the short run and in the long run, if a negative supply shock like a war occurs.

Exercise 4 Use a combination of text and drawing of figures when answering the following questions: a) Discuss the effect of an expansionary fiscal policy using the IS TR model. Why does the interest rate change and what does it mean for the Keynesian multiplier? b) How will the answer from the previous sub-question change if: i. the inflation targeting of the Central Bank became more flexible? ii. the country opens up like after a pandemic leading to more imports? c) Explain the difference between the effect of an expansionary fiscal policy using an IS- TR-IFM model comparing Norway and Denmark as examples of countries with different exchange rate regimes. d) Assume a model where actual inflation depends on 1. Underlying inflation, 2. Output gap and 3. Supply chock. Explain in a diagram with an aggregate supply curve (AS) and using numbers for each of these three factors, the outcome in the short run and in the long run, if a negative supply shock like a war occurs.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter9: The Keynesian Model In Action

Section9.4: Recessionary And Inflationary Gaps

Problem 1YTE

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