Economics Homework Help

Question 1:

Suppose individuals in the economy are infected with optimism, and they expect that total factor

productivity will be much higher in the future. Determine the equilibrium effect of this using the

monetary intertemporal model. Can waves of optimism and pessimism explain the key facts of the

business cycle? What should the FED do to keep prices stable?

Question 2:

Many have suggested that recent increases in prices are the result of supply chain shortages. Suppose

that we all expect this issue to be temporary. In our framework, it can be represented by a decrease in

current total factor productivity. Use the monetary intertemporal model to show whether supply chain

shortages can cause inflation.