(2) Why is a steady statc consistent with the traditional IS-LM? (5%)

題組內容

2. An IS-LM model can be shown by a differential equation system:
where Y real income, T' lump-sum tax, C real consumption, I investment, R interest rate ㆍ G government consumption ' L real money demand , M money supply ㆍ P price, t time, Ik constant, respectively.

1. Please translate the followings into Chinese (10%), and then provide specific explanations for the three bolded and underlined parts (15%): Monetary policy operates via asset prices and the financial conditions faced by borrowers and lenders, which in turn are key determinants of the cost of capital, households ' wealth, the balance sheet offirms and fnancial intermediaries, and the strength of the currency. In general, it operates by: (1) setting short-term nominal rates； (2) managing expectations using a range of communication tools; (3) providing liquidity to financial intermediaries and financial markets in case their stability is threatened by non-fundamental stress or panic; (4) adopting regulatory/supervisory measures when in charge; and (5) carrying foreign exchange interventions when in charge.

題組內容

(2) Why is a steady statc consistent with the traditional IS-LM? (5%)

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