Assignment:
The purpose of the paper is for you to read (which is not covered in class). You are to describe the model presented by Mankiw and relate the elements of the model back to material we covered in earlier chapters of the book. Each concept and equation used model ("the model") has been presented in the material we cover.
The paper is to be 8 to 10 pages typed, double spaced. You may write equations and draw graphs neatly by hard.
Major items you must cover:
(1) List and describe in detail each of the five concepts (equations) that make up the DAD-DAS model developed.
(a) Describe how each of the five concepts relate to material covered earlier in the book.
(b) Write out the formula for the Taylor Rule. How does the central bank react if the is an increase in inflation?
(c) How does use of the Taylor Rule differ from the LM curve used in the IS-LM/AD/AS model covered earlier?
(2) List and describe in detail each of the model variables. Which variables are endogenous, which exogenous?
(3) List and describe in detail the model parameters.
(4) What is the DAS curve?
How is it derived?
Why does it slope upward?
Does the DAS curve have a dynamic element?
(5) What is the DAD curve ?
How is it derived?
Why does it slope downward?
Does the DAD curve have a dynamic element?
(6) Describe equilibrium.
(7) List the three variables that cause the DAS to shift?
Give examples for each shift.
(8) What causes the DAD to shift?
List at least two variables that shift the DAD curve and the direction of the shift.