Exam Assumptions These assumptions hold throughout the ENTIR…
Exam Assumptions These assumptions hold throughout the ENTIRE exam (unless told otherwise) we always start at Y*, all variables (consumption, investment, etc.) are real variables, unless otherwise stated, Capital (K) is fixed in both the short and long run, but is allowed to change in the really long NX is fixed (at zero), unless otherwise instructed, no policy response takes place, unless otherwise instructed, consumers are non-liquidity constrained, non-Ricardian PIH (who have long lives such that LL is large), unless otherwise instructed, all shocks to the economy are permanent and unexpected, unless otherwise stated, Expected inflation has no effect on money demand, Changes in N have no effect on investment demand, TFP, oil prices, consumer confidence, business confidence, changes in the stock market, changes in population, and changes in value of leisure (i.e., all exogenous variables) only change when I tell you they change. **When discussing long run changes, compare the initial condition of the economy to where it will end up in the long run (unless told otherwise).