When you have U=Un it's expected to have Pi=Pi*, here it's not the case , meaning that there is the same number of unemployed people but the prices increase. In order to counter that, Fed will try to stimulate the economy by " creating money" , so the loan rate will decrease and people will be able to buy more goods, leading to an increase in production and so reduction of unemployment. ( Hope I don't mistake)
I would say that policy makers will try to increase inflation more than necessary and so try to increase outputs and consumption ! That would lower up unemployment to the expected rate ---> lead to answer D
I did 2 past exams now, (closed), both failed.
I have done the SF crash course & exam training and I feel really prepared though.
Anyone who would have some tips to give me a greater chance of passing tomorrow ? Thanks a lot
Do as many old exams as you can do and write down the mistakes you made on a separate paper. Tomorrow a couple of hours before the exam you can do one last exam existing only of the mistakes you made. No way you can fail this way if you understood the concepts.
When fiscal consolidation takes place, it will lead to a lower demand due to the increase in taxes. In order to boost Y, the central bank will decrease the policy rate so investing will be cheaper to get the Y back at the original level.
I'm not sure about this. How she explained it in the lecture was that prices are higher and income is lower during a crisis, thus you have to spend a bigger part of your smaller income on consumption, which implies a larger propensity to consume. This was just an extra story she said.
The question was actually about the fiscal multiplier and marginal propensity to save
We don't really take that into consideration like this in the first chapters. But when the outlook of the consumers changes, the multiplier is affected. So the answer is yes. However, you can argue that saving is equal to I investment, that's a problem in the model she mentioned in the lecture
The LM-curve is flat when the Central-Bank chooses the interest-rate and adjusts the Money-supply depending on the Economy.
In this case the Central-Bank chooses the Money-supply and leaves all other factors to the market, meaning the higher the output the higher the interest rate
Because the Phillips-Curve tells us, that a bigger difference between u(t) and u(n) will result in false expected inflation. In this case when u(n) is underestimated, the inflation will also be underestimated. Therefore, the CB would impose a policy that increases inflation.
In my year we had a different book which is why this might not relate to anything you learn now in the course. As I am no longer aware of this course’s organisation, I would advise you to consult your tutor or your course coordinator for more information on how this subject might be approached or if it still is relevant for your exam.
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