An important issue in an macroeconomic model is the interest elasticity of
aggregate expenditure. How much do consumption and investment respond to changes in
interest rates? How much would the properties of the model change if the responses were
different? These questions can be analyzed by running different experiments. We first
consider the case in which the interest elasticity of consumer expenditures for durable
goods is larger. We then explore the case in which the interest elasticity of
nonresidential fixed investment equation is larger.
Experiment 10.1: Experiment 6.1 with more Interest Elastic Consumer
Expenditures
 Change the eighth coefficient in equation 3 to be twice its size in absolute
value. Solve the model for the forecast period. Call this dataset BASEA. Take BASEA as
your base dataset, take RS to be exogenous,
and increase RS by 1 in each quarter of the forecast period. Solve the
model for the forecast period. Call this dataset NEWA. Answer the following questions by
comparing NEWA to BASEA.
 Note that as in Experiment 9.1 a new base dataset had to be created because a
coefficient was changed. The predictions of the new version of the model are not the same
as the predictions in BASE, and so a new base dataset had to be created. Again, it is not
of interest to compare the predicted values in a dataset like BASEA with the values in
BASE. They differ, but only because a coefficient estimate has been arbitrarily changed.
 Compare these results with those of Experiment 6.1. Explain the differences
carefully.
Experiment 10.2: Experiment 6.1 with more Interest Elastic
Capital Stock
 Change the ninth coefficient in equation 12 to be twice its size in absolute
value. Solve the model for the forecast period. Call this dataset BASEA. Take BASEA as
your base dataset, take RS to be exogenous,
and increase RS by 1 in each quarter of the forecast period. Solve the
model for the forecast period. Call this dataset NEWA. Answer the following questions by
comparing NEWA to BASEA.
 Compare these results with those of Experiment 6.1. Explain the differences
carefully. In particular, how does the behavior of
nonresidential fixed investment, IKF, differ? Remember that IKF is
equal to the change in the capital stock plus depreciation (equation 92).
