Assume that the level of output You found in part by is the Economy's long- run full-Employment level, defined as { . [ ] Now suppose that the...
Please answer d and e only, provide explanations with answer
Assume that the level of output You found in part by is the Economy's long- runfull-Employment level, defined as { .[ ] Now suppose that the Efficiency of the payments systems has improved . We cancapture this by assuming that the constant term in the money demand equationFalls from 18 to 10 . At the same time , the central bank is unaware of this change*and keeps the nominal money supply constant at the level you found in part by.Find the short-run effects of this change on " and r . IF the natural rate ofunemployment , I , is GM's , what is the actual rate of unemployment , & , followingthe change in the efficiency of the payment system ?" Provide a brief explanationof your results . For simplicity , you can assume that wages remain constant in the*short run .I] What are the longer-term implications of this change in the Efficiency of thepayments system ?" In particular , what happens to the price leve ! ?" What happensto the unemployment rate during this process ?" What is the new value of the realmoney supply ?" He sure and describe the process at work.# ] Suppose that the government decides to use fiscal policy to offset the effect ofthe change in the efficiency of the payments system .1] Holding the level of taxation [ I] constant , by how much would Chave tochange in order to Keep the economy at full employment in the short run ?21 For comparison , hold G constant and now use taxation [ I] to maintain theEconomy at full employment$ ] Comparing the two policy instruments , which had the larger effect on theGovernment's budget balance and why ?"
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