Question 1
（Partial Wrong）For each of the following events, state 1) whether there is movement along the MP curve or a shift, and 2) the direction of the shift or movement along if there is one. Recall that a “movement along” the MP would occur if it’s the IS curve that shifts.
a) The Fed decreases the target federal funds rate
Shift Up of the MP Curve
b) The real GDP Increases
Movement Along the MP Curve – to the Right
c) Government spending decreases
Movement Along the MP Curve – to the Left
d) Lending institutions begin to charge a higher default risk premium
Shift Down of the MP Curve
Question 3
The causes of the 2007-2009 recession are fairly well-understood: earlier financial innovation and deregulation led to a boom, causing the prices of financial assets and real estate to rapidly increase. Last chapter I discussed the “wealth effect” in some places to describe the drop in consumption that occurred when the stock market and housing market collapsed. However, the banks also were psychologically impacted by the collapse. Try to think about what banks may do. Eventually, the asset bubble burst and the real estate market collapsed.
Part a) (2 points) In reading the description above, which part of the IS-MP curve am I trying to refer to? The IS curve or the MP curve? After you decide upon this, recall that the IS curve is shifted by changes to autonomous C, I, G, and NX and the MP curve is shifted by changes to i, DP, TSE and inflation. Which component may be affected by what I’m describing above? Write your answer into the attached file.
Part b) (2 points) Use your answer in part a) and the IS-MP model to illustrate the recession. Use the attached graph to model the shift that you are referring to in your answer to part a). Save the file and upload the file using the link below this question.
Question 6
Show what would happen to the Phillips curve if you started in period 1 with π 1 = 3 % and s 1 = 0 % but then there was a negative supply shock of s 2 = − 1 %. Assume that nothing else changes. To show this, compute π 2 and label your graph, showing the shift in the PC while keeping Y ~ 1 = Y ~ 2 = 0 %.
Use the attached Word document that has the Phillips Curve already constructed for you. Enter in values for π 1 and π 2.
Save your file and upload it into the link below.
Here is the Word file:
Question 7
This question includes a button that allows you to upload a file. I also linked a Word document below that you can use to answer this question by copying/moving curves and labeling them.
Assume that the 2007-2009 recession has gotten under way and the Federal reserve cuts the federal funds rate. Use IS-MP with Phillips Curve model linked below to show how the cut in interest rates could us out of the recession and into a point where Y ~ 2 = 0 %.