代写Assignment 3: The IS-LM-PC model代写Java程序

Assignment 3: The IS-LM-PC model

This assignment covers the IS-LM-PC model of lecture 11. You can achieve a maximum of 10 points. Please submit your answers directly during the revision class in week 13 (July 10).

Setup: Assume that the economy is initially (period 0) in the medium-run equilibrium. Output is at the natural level of output YN and the unemployment rate at the natural rate uN . Actual and expected inflation are equal to 2%. Use the IS-LM-PC model from the lecture to answer the following questions.

1. Suppose there is an increase in consumer confidence in period 1. How does the IS curve shift, assuming that the central bank does not change the real interest rate? Graphically illustrate the effects of this shock and discuss how the short-run equilibrium in period 1 compares to the equilibrium in period 0.

2. Assume that inflation expectations are adaptive: If the central bank leaves the real interest rate unchanged, how does actual inflation in period 2 compare to inflation in period 1? How must the central bank change the nominal interest rate to keep the real policy rate unchanged? How does the actual inflation rate in period 3 compare to inflation in period 2? Graphically illustrate these effects.

3. Assume that inflation expectations are anchored at 2%: If the central bank leaves the real interest rate unchanged, how does actual inflation in period 2 compare to inflation in period 1? How must the central bank change the nominal interest rate to keep the real policy rate unchanged? How does the actual inflation rate in period 3 compare to inflation in period 2? Graphically illustrate these effects.

4. Compare the inflation and output outcomes in questions 2 and 3. Which scenario do you think is more realistic in the current environment in the United States? Discuss.

5. Suppose that in period 4, the central bank decides to raise the real policy rate high enough to return the economy immediately to potential output YN and to the initial inflation rate of 2%. Explain the difference between central bank policies using the two assumptions about inflation expectations in questions 2 and 3. Graphically illustrate both cases.