Give informative, but concise answers. Consider what is relevant to solve the problem. Interpret the problem in terms of macroeconomic theory. Present the theory and describe the mechanisms of the models at issue. Use the theory to solve the problem and show what happens in the models. Make a concluding remark.

problem 1:

Assume a government uses an expansionary fiscal policy to get out of a recession. Use the IS/LM model and the IS-PC-MR model to describe what monetary policy to pursue.

problem 2:

Consider an economy, in which technological capabilities become obsolete. Use the Solow-Swan model and the knowledge spillover model to describe how its productivity growth rate dependence on capital changes over time.

problem 3:

Consider an economy with high innovative potential, but where saving is insufficient to fund innovative investments. Use Garrison’s capital-based macroeconomics to describe how more funding to innovative investments and thereby higher sustainable growth can be obtained.

problem 4:

Assume home cost pricing prevails in international trade, where as world output is declining. Consider two economies, A and B, both having floating exchange rates and the similar monetary policy regime; the only difference being that the wage costs of economy A increase relative to those of economy B. How can the Mundell-Fleming model be used to describe what happens to the trade balance and output of these two economies.