{ "cells": [ { "cell_type": "markdown", "metadata": {}, "source": [ "# Quiz 8 Support\n", "\n", " \n", "\n", "\n", " " ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "## Quiz 8: Flexprice and Sticky-Price Models\n", "\n", "The primary reason we are making the sticky price-wages-debt assumption right now is:\n", "\n", "1. We are sure that it corresponds to reality.\n", "2. There is a lot of evidence that prices, wages, and debt are sticky, and that in the short run it is aggregate demand that determines the level of national income and product.\n", "3. It is the simplest way to break the flexprice model conclusion that national income and product must always be close to potential output, and we know that conclusion must be broken in any good model.\n", "4. It is a legacy left behind from the economics of the 1940s that ought to be dropped.\n", "5. None of the above/not enough information\n", "\n", "----\n", "\n", " \n", "\n", "### In the Flexprice Model...\n", "\n", "…suppose foreign exchange speculators become more pessimistic about the dollar so that the parameter εo goes up by an amount $ \\Delta\\epsilon_o $. The relevant pieces of the flexprice model are:\n", "\n", ">$ \\Delta\\epsilon = \\Delta\\epsilon_o - \\epsilon_r\\Delta{r} $\n", "\n", ">$ \\Delta{I} = -I_r(\\Delta{r}) $\n", "\n", ">$ \\Delta{NX} = \\Delta{GX} = -x_{\\epsilon}\\Delta\\epsilon $\n", "\n", "This increased pessimism leads:\n", "\n", "1. investment spending to go up and net exports to go up\n", "2. investment spending to go up and net exports to go down\n", "3. investment spending to go down and net exports to go up\n", "4. investment spending to go down and net exports to go down\n", "5. none of the above/not enough information\n", "\n", "----\n", "\n", " \n", "\n", "### In the Sticky-Price Model...\n", "\n", "...an increase in consumer confidence $ c_o $ leads to:\n", "\n", "1. an increase in Y, an increase in C, and no change in NX and I\n", "2. an increase in Y, an increase in C, and reductions in NX and I\n", "3. no increase in Y, an increase in C, and a fall in NX and I.\n", "4. no increase in Y, an increase in C, a fall in I, and no change in NX\n", "5. none of the above/not enough information\n", "\n", "----\n", "\n", " \n", "\n", "### In the Sticky-Price Model...\n", "\n", "...an increase in the marginal propensity to consume $ c_y $ leads to::\n", "\n", "1. an increase in the multiplier μ\n", "2. a decrease in the multiplier μ\n", "3. no change in the multiplier μ\n", "4. not enough information to tell…\n", "\n", "----\n", "\n", " \n", "\n", "### To Your Smartphones (or Whatever)...\n", "\n", "“Econ 101b S2018 Quiz 8” as the subject line…\n", "\n", "In the flexprice model, whenever national income and product Y was below (or above) potential output Y*, there would be an excess supply (or demand) of savings flowing into financial markets. That excess supply would push down interest rates and encourage investment spending to grow, pushing the economy back up to potential output.\n", "\n", "Why does this economic system response mechanism not push the economy to full employment and national income and product equal to potential output in the sticky-price model?\n", "\n", "----\n", "\n", " \n", "\n", "## Catch Our Breath...\n", "\n", "\n", "\n", "* Ask me two questions…\n", "* Make two comments…\n", "\n", "Further reading: \n", "\n", "
\n", "\n", "----\n", "\n", "* Lecture Support: \n", "* Quiz 8: " ] } ], "metadata": { "kernelspec": { "display_name": "Python 3", "language": "python", "name": "python3" }, "language_info": { "codemirror_mode": { "name": "ipython", "version": 3 }, "file_extension": ".py", "mimetype": "text/x-python", "name": "python", "nbconvert_exporter": "python", "pygments_lexer": "ipython3", "version": "3.6.5" } }, "nbformat": 4, "nbformat_minor": 2 }