A financial crisis: Suppose the economy starts with GDP at potential, the real interest rate and the marginal product of capital
both equal to 3%, and a stable inflation rate of 2%. A mild financial crisis hits, that raises the risk premium from zero to 2%.
a.Analyze the effect of this shock in an IS/MP diagram.
b.What policy response would you recommend to the Federal Reserve? What would be the effect of this policy response on the economy?
c.How would your answer to part b) change if the financial crisis were very severe, raising the risk premium to 6%?
d.What other policy responses might be considered in this case?
a.Analyze the effect of this shock in an IS/MP diagram.
b.What policy response would you recommend to the Federal Reserve? What would be the effect of this policy response on the economy?
c.How would your answer to part b) change if the financial crisis were very severe, raising the risk premium to 6%?
d.What other policy responses might be considered in this case?
1 answer:
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Answer:
The percentage change in nominal GDP from 2013 to 2014 was 4.29%
The percentage change in real GDP from 2012 to 2013 was 1.48%
The percentage change in real GDP from 2012 to 2013 was higher than the percentage change in real GDP from 2011 to 2012. FALSE
Explanation:
In order to calculate this we just have to calculate the percentages with a rule of thirds:
To calculate the first one we use the nominal GDP which is the GDP with the current market value:
To calculate the change in real GDP we use the values adapted to a pre-agreed monetary value, in this case the dollar at 2009:
To calculate the 2011 to 2012 we insert the values:
So with this we know that it is wasn´t higher the percentage change from 2012-2013, than that of 2011-2012