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Question 3 SE Model 40 points Using the theories and ideas we learned in class about traditional Classical Keynesian and Monetarist macroeconomics write down build your own simultaneous equations SE model that represents a general equilibrium of the macroeconomy The model must satisfy the following criteria Contain at least four 4 structural equations but not more than 10 Cover both the real and nominal sides of the macroeconomy Include at least one 1 Government agent Complete equations for all elements of identities both supply and demand etc Clear notation including time subscripts variable definitions and parameter signs EXCLUDES any lagged endogenous variables e g y Answer the following questions a For each structural equation write a brief explanation of the macroeconomic theory and intuition underlying the equation Be sure to note whether it is Classical Keynesian or Monetarist in nature and why b Explain your definition of macroeconomic general equilibrium and how your model is consistent with it HINT It may be helpful to explain what you left out of the model and why c Try to solve your SE system of equations If you get stuck and can t solve the model or it turns out to be unsolvable just write a brief explanation of your conclusion HINT Don t spend too much time on this d Convert your SE model to matrix algebra format Ty Bx e a Write your SE system of equations in expanded form with vectors y u and x xxx plus all elements of the matrices I LXL and B LxK b Using the simple formula for any generic SE model ly Bx i e without detailed elements of y x I and B derive the reduced form solution of the model Be sure to show the formulas for 1 the mapping between structural and reduced form parameters and 2 the mapping between structural and reduced form errors

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