Project #70087 - ECON-money and banking

1. Consider the IS/LM, AD/AS, Taylor Rule, and Okun’s Law.
a. US economy started to slow down in 2008. GDP went from 14,895.5 in 2007Q4 to14,372.1 in 2008Q4 while Potential GDP increased from 15,125.6 to 15,436.8 during thistime. Inflation went from 4.1% to -0.2% during the same time. At this time the actual FedFunds Rate, were 3.18% and 0.18% if we assume a long run inflation target of 2% andequilibrium interest rate of 3%, what should the Fed Funds Rate be in both periods?b. Suppose that the natural rate of unemployment has been a steady 6% for the last decade.What would this imply the unemployment rate was in both periods--assuming a Beta of2.0 in Okun’s Law?c. We learned before that when the economy is in a recession, like it was in 2008, thegovernment can conduct fiscal policy to get the economy out of the recession. Supposethe government was able to do this under the Keynesian assumptions. What would thisimply the Fed Funds Rate and Unemployment Rates would be after this policy? Showthis graphically using the general equilibrium models.2. Show graphically what would happen to the risk premium between corporate bonds and U.S. TSYif the public believed the S&P when they downgraded the U.S. in August of 2011?

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Due By (Pacific Time) 05/07/2015 12:00 pm
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