Macroeconomics Keynesian Model high BD and high Debt/GDP?

Posted on 2014-11-27 07:31:00 in Economics by RIAN

Describe the effect of each of the following shocks on the credit market, interest rates and on Keynesian equilibrium output. You should draw and discuss two figures in your answer: a supply and demand picture for the credit market, and a Keynesian 45 degree line diagram for the overall economy. Provide an intuitive explanation for each step.

(a) The Fed adopts loose monetary policy. This is refering to changes on insolvency and how high Budget defict and how debt increases government’s incentive to use ? to reduce real value of nominal debt obligations

(b) Following government bailouts, banks become much healthier (assume that this has no effect on autonomous consumption or net exports; the only effect is through the credit market).

(c) The government increases purchases of goods and services, assuming that some crowding out occurs but is not complete.

(d) The government raises taxes, assuming complete crowding out.

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