1.Open the Macro3 module. Select “Inflation” as the state of the macro-economy. Enter the initial conditions and all later results in the table at the end of this assignment. Enact a set of policies designed to correct the inflation problem, setting your target rate between 1.5% and 2%. In your answer tell me what your target rate was. (Note: after setting your policy you may need to hit “enter” to activate the “No Shock” button.) Click on “No Shock” to see your results. Compare the short run results of your policy to the short run results in the initial conditions. Include an evaluation of the extent to which you succeeded in correcting the problem in the absence of any shock. [Note: the inflation rate in the initial conditions is not just negative it is wildly unrealistic. Don’t let that throw you.] Explain why the policy you chose worked to get rid of the inflation.
2.Click on “No Shock Long Run” and record you results in the table below.
3.Click on New Policy and enter the same policies as you used in (1) but this time click on “Supply Shock”. When asked choose to set the shock manually or to let the computer do it select Manual. Set the value at -30 (that is negative 30) then click “Continue.” After recording the results click on “Supply Shock Long Run” and record your results.
4Explain the differences between the short run results of your policies when there was no shock and the results when you caused the supply shock. Suppose the supply shock was called “Corona virus” what change in policy do you think would help offset some of the results of the shock. Does it matter whether you are more concerned with the effects on real GDP and unemployment or with the effects on inflation? Explain and show the impact of your policy in the table below.
5.Explain any differences you see between the long term results without the supply shock, with the shock, and with the policy you used to offset the shock.
The post Select “Inflation” as the state of the macro-economy appeared first on Homeworkaider.
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