Suppose the Fed Has Just Learned That Some Foreign Economies

question 42

Essay

Suppose the Fed has just learned that some foreign economies are headed for recession,which will reduce U.S.exports.This is an economic shock that shifts the IS curve down.What would you do in response to the shock if you want to keep the economy at full-employment equilibrium under each of the following cases?
(a)You use the classical (RBC)model.
(b)You use the Keynesian (efficiency wage)model.
(c)You use the extended classical model with misperceptions.
In each case,show the IS-LM-FE diagram associated with your answer.

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Definitions:

Analog-Tag

A label or identifier for analog signals in a system, which represent a range of values, not just binary, to control or monitor devices.

Alias-Tag

A secondary name assigned to a tag or variable in programming environments like PLCs, allowing for easier identification or referencing.

Foreshortening

A technique used in visual art to create the illusion of an object receding strongly into the background or coming forward in space.

Chiaroscuro

In drawing or painting, the treatment and use of light and dark, especially the gradations of light that produce the effect of modeling.