moneym
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Assume that the Minister of Finance is responsible for fiscal policy and the Central Banker is responsible for monetary policy. These two policy makers have two options: (i) to agree in the mixture of policies (i.e. both follow a contractionary or an expansionary policy) OR (ii) to disagree in the mixture of policies (i.e. one follows contractionary policy and the other follows expansionary policy). The choices are concisely described in the following table (with the numbers within the matrix showing the payoffs to each policy maker):
Minister of Finance


Central Banker

1) What is/ are the Nash equilibria? Explain your answers. (20 marks)
2) If we assume that the case of disagreement is detrimental for the economy, analyse the best choices for the two policy-makers. (20 marks)
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moneym
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Contractionary Policy
Expansionary
Policy
Contractionary
Policy
3, 2
0, 0
Expansionary Policy
0,0
2, 3
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FVP
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This is not a difficult question, at all. Read your textbook.
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moneym
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would you say it is expansionary policy? 2,3
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Mike_123
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(Original post by moneym)
would you say it is expansionary policy? 2,3
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There are two Nash Equilibria. Look at the definition for it and see why this is the case.
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moneym
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(Original post by Mike_123)
There are two Nash Equilibria. Look at the definition for it and see why this is the case.
but I was told it is 2,3? both expansionary.
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