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Question Answered step-by-step Read the Entire article :… Read the Entire article: https://economistsview.typepad.com/economistsview/2012/01/fed-watch-zirp-and-interest-income.htmlImage transcription textThis HW assignment is very relevant tothe Great Recession experienced inthe US from December 2… Show more… Show moreImage transcription textI HATE THEN DON’T OPEN BUT I FEEL LIKE I’M MISSING SOMETHING… OPENING IT! WHY UPSETHALLP! UP MY 401K YOURSELF? UPDATE! HOLY IT MAKES COW! MY HAIR STAND ON END!WHOA!! HOW MUCH?! 2-17… Show moreImage transcription textJ |_ l. {30 points total — 5 points eachpart] Suppose we have Dagwood, whohas a current income of $… Show more… Show moreImage transcription textJ L b. Draw a completely labeled graph (the two-period consumption Infidel) depicting this initialoptimal eonsmption bundle and label it as point CH, Be sure to label the nu lending Inn burrowing point= M. … Show moreImage transcription textc. Now Dagwood can’t help himself and opens up that envelope and “ouch” he says, hiscurrent wealth has lost eighty percent (80%) of its value and thus falls from $100K to $20K. RecalculateDagwood’s ‘new’ optimal consumption point and label on your graph as point C*B…. Show moreImage transcription textd. Is Dagwood worse off or better off?Explain (hint, what has happened to hisbudget constraint (aka op… Show more… Show moreImage transcription texte. The Fed decides to conduct massiveamounts of open market purchases andget the real rate of interest… Show more… Show moreImage transcription text4 |_ I. Is Dagwood better or worse ofl’ due to the fill in the real rate of interest? Explain being sureto discuss exactly how the substitution and income effects play a role here. Be sure to define whatthe income and substitution clients are and how.r they play a role in DagWflfld= s deci… Show more… Show moreImage transcription text2. (30 points total – 5 points each part)Dagwood’s neighbor, Homer Simpson,does not abide by the life … Show more… Show moreImage transcription textb. Draw a completely labeled graph (the two—period consumption model) depicting this initial optimaleunmunption bundle and label it as point C*_p,, Be sure to label the nu lending I no bmrcrwing paint =NLFNB- … Show moreImage transcription textNow Homer, of course, is not affectedby the crashing market since he has noenvelope to open! c. Hom… Show more… Show moreImage transcription textJ |_ e. The Fed decides to conduct massive amounts of open market purchases and get the realrate of interest all the way down Lg???) Recalculate the optimal bundle for Homer and add thispoint to your graph and label as point C*c. (Note: point C*c incorporates the shock to… Show more… Show moreImage transcription textf. Is Homer better or worse off due tothe fall in the real rate of interest?Explain being sure to disc… Show more… Show moreImage transcription text3. (30 points total – 5 points each part) a. What is the net effect of this expansionary monetarypolicy (i.e., negative real rates of interest) on consumption, all else constant? To answer thisquestion, assume we have an equal amount of “Dagwoods” and “Ho… Show more… Show moreImage transcription texth. Now consider the case where Homer is credit constrained and thus, cannot qualify for cheaploans since his balance sheet is a wreck. As such, the real rate of interest that Homer faces is 10%(r = lllfl), and not the ultra—law negative real rate = —_D5 that Dagwood {who has a s… Show more… Show moreImage transcription textc. Are your results consistent with this graph of Personal Consumption Expenditures from FRED?Why or why not?… Show morequestion C – graph of Personal Consumption ExpendituresImage transcription textFRED – Personal Consumption Expenditures 10,200 10,100 10,000 Billions of Dollars 9,900 9,8009,700 Jan 2008 May 2008 Sep 2008 Jan 2009 May 2009 Source: U.S. Bureau of Economic Analysis… Show moreImage transcription textWe are now going to derive and draw (depict) two desired savings functions for Homer andDagwood respectively. Note importantly that savings in the present context is defined simply asy-c, that is, current income minus current consumption. Note also that savings can b… Show more… Show moreImage transcription textWe now move on to the results for Homer. We are going to do the exact same exercise that we didfor Dagwood. e. Using only the results from 2c and 2e, where y = $200K, derive the desiredsavings function (for Homer) labeling the point from 2c as point A and the point from … Show more… Show moreImage transcription text1′. Suppose you were Janet Yellen’s cousin and was head of the central bank in an economy filledwith Dagwoods (savers). Suppose also that your economy was in a m and you wanted tostimulate consumption today as part of your dual mandate. Suppose the current real… Show more… Show moreImage transcription text(20 points total ) 4. Below is the foundation of the two-period consumption model discussed inclass. You are given the no lending – no borrowing point (NL/NB) for this economic agent. . NL/NBa) [2.5]Clearly label both the vertical and the horizontal axis in this model. b) [2.5]As… Show more… Show moreImage transcription text1n the ‘real world’ the rate at which you can borrow and the rate at which you can save aredifferent than the Federal Funds rate set by the FOMC. For instance, the rate at which someonecan save is traditionally less than the Federal Funds rate and the rate at which some… Show more… Show moreImage transcription texte) [fig the heal—world: situation, are borrowers better or worse off? Explain. i) m the ‘real—world:situation, are savers better or worse ofi’? Explain. g) [film is one type of economic agent that doesnot get influenced by a change in the real interest rate. mat characteristics does this… Show more… Show more   Business Economics Macroeconomics ECON 304 Share QuestionEmailCopy link Comments (0)