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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rjwilliams3
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Hey, I dont know if it is just me but I cant see the table.
If you're referring to a matrix such as the following:

Low r High r
Budget Balance 3,4 1,3
Budget Deficit 4,1 2,2

Then the Nash equilibrium will be a budget deficit and a high r (do you understand why?).
If your matrix is different then post it and I'll see if I can come up with the NE.

Rhys
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moneym
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Minister of Finance


Central Banker
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moneym
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(Original post by rasclerhys)
Hey, I dont know if it is just me but I cant see the table.
If you're referring to a matrix such as the following:

Low r High r
Budget Balance 3,4 1,3
Budget Deficit 4,1 2,2

Then the Nash equilibrium will be a budget deficit and a high r (do you understand why?).
If your matrix is different then post it and I'll see if I can come up with the NE.

Rhys
minister of finance
yes the matrix is : 3,2 0,0
central banker 0,0 2,3
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SarcasticMel
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20 marks for a relatively easy question here.

I.e. you need to explain everything. Start with a table at the top. Then first thing you should do is define the Nash Equilibrium. And for 20 marks, I would go through the cases to show why the others don't fit that definition and then finish with the Nash Equilibrium(ia).
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rjwilliams3
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(Original post by moneym)
minister of finance
yes the matrix is : 3,2 0,0
central banker 0,0 2,3
There are two Nash Equilibria, whatever the actions that result in 3,2 (NB: 3,2 isn't the Nash equilibria in itself, this will be low r, budget deficit or whatever the actions are that result in this payoff) and 2,3 (NB: see previous NB!).
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