Question

In: Economics

a) “According to the long-run classical model, there will be a decrease in the world interest...

a) “According to the long-run classical model, there will be a decrease in the world interest rate and the world level of investment when the aging populations of industrial countries start running down their savings and, at the same time, the investment appetite of emerging economies begins to slow down.” True/False, explain with the aid of one diagram for the world market for loanable funds. (10 points) Note: The world as a whole is a closed economy.

b) A new study shows that the level of total factor productivity increases and, at the same time, the labour force participation rate falls. According to the long run classical model, what happens to the equilibrium levels of the real interest rate, the real rental price of capital, and the real wage? Explain in words and support your answer by using ONE loanable funds market diagram, ONE labour market diagram, and ONE rental market for capital diagram. (15 points)

Solutions

Expert Solution


Related Solutions

Draw a Classical Economic Model that is operating at the long-run equilibrium. In the short run,...
Draw a Classical Economic Model that is operating at the long-run equilibrium. In the short run, what will most likely happen to RGDP if the AD curve shifts right? RGDP will increase RGDP will decrease RGDP will stay the same Draw a Classical Economic Model that is operating at the long-run equilibrium. In the long run what will most likely happen to RGDP if the AD curve shifts right? RGDP will continue to increase RGDP will continue to decrease RGDP...
What determines the unemployment rate in the Long Run? Explain using the Classical model, Keynesian model...
What determines the unemployment rate in the Long Run? Explain using the Classical model, Keynesian model or Phillips curve.
Use the classical model for determining the long-run outcome of the economy to answer the following...
Use the classical model for determining the long-run outcome of the economy to answer the following question. Suppose a government in debt crisis (such as Greece) moves to reduce its budget deficit by reducing the annual funding for tertiary education and healthcare drastically. (b) State and explain in words what happens to the real interest rate, national saving, investment, consumption, and output. (c) Discuss the likely impact of such policy on the inequality of income between the educated and uneducated...
11. Assume that the world works according to the Classical model. In a small open economy, output is...
11. Assume that the world works according to the Classical model. In a small open economy, output is produced according to a Cobb-Douglas production function, consumption is equal to C=40+0.6(Y-T) and the investment function is I=280-10r. You know that the output produced is Y=900, government spending is G=150, taxes are T=90 and that the world real interest rate is 4% (r*=4). In all the questions below, make sure to explain your answers and show all your work. a. Compute: i. Private saving, Public saving, and National saving; ii. the amount of net...
The long run aggeegrate supply LRAS curve of the classical model is: Question options: vertical upward...
The long run aggeegrate supply LRAS curve of the classical model is: Question options: vertical upward sloping horizontal downward sloping
9. John Maynard Keynes famously criticized the classical macroeconomic model by saying “In the long run,...
9. John Maynard Keynes famously criticized the classical macroeconomic model by saying “In the long run, we are all dead.” While Keynes was probably exaggerating his views, he believed he was making an important point. a. (8 points) is Keynes main criticism of the classical model? (Hint: this criticism also applies to policy-makers relying on the long-run model of the relation between the price level and real output.) b. (8 points) Why do some economists today oppose “Keynesian” policies in...
A closed economy can be described by the long-run classical model: Y = 2KαL1–α C =...
A closed economy can be described by the long-run classical model: Y = 2KαL1–α C = 18500 + 0.75(Y – T) – 800r I(r) = 11000 – 1200r Note: r represents the real interest rate and is measured in percentage points (for example, if we find r = 10, then r is interpreted as being equal to 10%). Keep your answer to 4 decimal places if needed. Assume that there are two factors of production, capital (K) and labour (L),...
According to the AD/AS model, the long-run aggregate supply curve is determined by the availability of...
According to the AD/AS model, the long-run aggregate supply curve is determined by the availability of labor, capital, natural resources and technology. Select one: True False A decrease in demand would cause the price level to fall and the SRAS to shift to the left. Select one: True False Suppose the economy is in long-run equilibrium. If there is an increase in government spending at the same time that an increase in resources reduces production costs, then in the short-run...
According to the long run money market model, if money supply is growing at 4% in...
According to the long run money market model, if money supply is growing at 4% in the United States and 5% in the United Kingdom, while real GDP is rising at 2% in the United States, and at 1% in the United Kingdom, what will happen to the nominal exchange rate between USD and British pound? What is the rate of expected depreciation?
According to the long run money market model, if money supply is growing at 4% in...
According to the long run money market model, if money supply is growing at 4% in the United States and 5% in the United Kingdom, while real GDP is rising at 2% in the United States, and at 1% in the United Kingdom, what will happen to the nominal exchange rate between USD and British pound? What is the rate of expected depreciation?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT