Macroeconomics Problem Set 3 - Week 4 - Prof. Camps, Apuntes de Economía

¡Descarga Macroeconomics Problem Set 3 - Week 4 - Prof. Camps y más Apuntes en PDF de Economía solo en Docsity! Macroeconomics I (22104) UPF, Year 2013-2014 – Prof. Davide Debortoli Page  1  of  2   Problem Set 3 – Week 4 (due during seminars on Oct. 30th-31st , or using Aula Global) Note: BAG stands for Macroeconomics : A European Perspec t ive , by O. Blanchard, A. Amighini and F. Giavazzi. 1. Problem 1, page 362, BAG Using the information in chapter 17, label each of the following statements true, false, or uncertain. a. Changes in the current-on-year real interest rate are likely to have a much larger effect on spending than changes in expected future one-year real interest rates. b. The introduction of expectations in the goods market model makes the IS curve flatter, although it is still downward-sloping. c. Current money demand depends on current and expected future nominal interest rates. d. The rational expectations assumption implies that consumers take into account the effects of future fiscal policy on output. e. Expected future fiscal policy affects expected future economic activity but not current economic activity. f. Depending on its effect on expectations, a fiscal contraction may actually lead to an economic expansion. g. Ireland´s experience with deficit reduction programmes in 1982 and 1987 provides strong evidence against the hypothesis that deficit reduction can lead to output expansions. 2. Problem 3, page 362, BAG For each of the changes in expectations in a) through d), determine whether there is a shift in the IS curve, the LM curve, both curves or neither. In each case, assume that expected current and future inflation are equal to zero and that no other exogenous variable is changing. a. A decrease in the expected future real interest rate. b. An increase in the current money supply. c. An increase in expected future taxes. d. A decrease in expected future income.