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:
40th unit = 0.11 hr
80th unit = 0.06 hr
160th unit = 0.03 hr
Explanation:
Given :
Learning rate = 60% = 0.6 (r)
Now using the learning curve equation,
where b is = -0.833
Now
= 2.5
For 40th unit
= 0.11 hrs
For 80th unit
= 0.06 hrs
For 160th unit
= 0.03 hr