=0. An economy is described by the following equations:AD:SRAS:Okun's law:Y = 4000 + 2(M/P)Y = ybar + 100(P-P)(Y-ybar)/ybar =-2(u-ubar).Assume ybar 6000 and ubar=0.05.=A) Suppose that the nominal money supply has long been at M = 4000 and is expected by thepublic to remain constant forever.The equilibrium value of P isThe equilibrium value of P is,The equilibrium value of Y is,The equilibrium value of u isThe equilibrium value of x is,(2 points each)B) A totally unexpected increase in in the money supply occurs, raising it from 4000 to 5250.[Part B is for extra credit]The short run equilibrium value of P isThe short run equilibrium value of Pe is_The short run equilibrium value of Y isThe short run equilibrium value of u is.The value of unanticipated inflation, which is defined as (P-P)/P, is,The value of the slope of the short-run Phillips curve is(2 points each)

A)Step 1: Find the equilibrium value of P.In the long run, Y = Y^bar = 6000 (by…

Answered: =0. An economy is described by the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Q4. Consider a closed economy which can be characterized by the following equations: C 200+ 0.25YD I 150 +0.25Y - 1000i G = 250 T = 200 (MIP) = 2Y - 80001 (MIP) = 1600 a) Derive an equation for the IS-curve. b) Derive an equation for the LM-curve. c) Solve for the simultaneous equilibrium on the goods and the money market. d) Compute the equilibrium levels of private consumption (C) and of investment demand (I). e) Suppose the central bank wants to increase the money supply to 1840. What happens to the equilibrium?
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3. The long-run effects of monetary policy The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL 0 2 LRAS 4 6 8 OUTPUT (Trillions of dollars) 10 AD 12 AD LRAS
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From the equation of exchange, if both real income (Y) and the quantity of money (M) double and the price level (P) remains constant, then velocity (V). and nominal income doubles; remains constant decreases by 50 percent; quadruples remains constant; doubles doubles; doubles none of the above
Suppose the price level in the economy is fixed at P and the exogenous money supply is given by M, Suppose the LM curve for these values of exogenous variables is drawn as in the figure below where Y is aggregate output and r is interest rate. Consider two points A and B in the diagram Assuming all exogenous variables remain unchanged, pick the correct relation between the nominal money demand Md at point A and point B. Scroll down to view the full image. C A MAYA,TA) > Md(YB, TB) B Md(YA,TA)=Md(YB, TB) M(YA,TA)
QUESTION 7 Consider the following Taylor rule i=0.02+0.5y+0.5 (n- 2% ) where y is the percentage difference between the actual output and its full-employment level, while is inflation over the last 12 months. The evolution of the economy is described by the following data: Full-emp't output Actual output Price level January, 2050 February, 2050 March, 2050 100.00 100.00 100.00 100.00 101.41 99.52 100.00 102.31 104.71 April, 2050 Мay, 2050 100.00 101.31 102.58 100.00 100.10 99.64 June, 2050 100.00 101.89 100.07 July, 2050 August, 2050 September, 2050 October, 2050 100.00 100.55 100.71 100.00 100.83 99.20 100.00 99.75 98.40 100.00 99.95 101.82 November, 2050 100.00 98.54 98.83 December, 2050 100.00 97.52 98.68 100.00 97.43 percent. January, 2051 98.10 According to the Taylor rune, in January 2051 the central bank must have set the interest rate at Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct…
Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y How much investment (I) will be crowded out if the government increases its purchases by deltaG = 160 and nominal money supply (M) remains unchanged?
Consider an economy in which the LM and IS functions are given below. Suppose the economy is purely classical so that yt=ý (you can see in picture) Then these equations can be condensed to LM mt - pt = y + c2Rt + εt, c2 < 0 IS Rt = r + Et(pt+1 - pt) + nt For simplicity, delete εt. Then assume that the monatery authority creates money according to MP mt = u0 + u1t + et Assume that et and nt are white noise and find the solution for pt and then for Rt.
Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms. a. How does the misperception theory work? b. Which of the three markets is first affected (labor, goods, or asset market)? Explain and show graphically how this market is affected by an unanticipated increase in the nominal money supply. c. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the short-run equilibrium. d. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the long-run (general) equilibrium.
Now, consider an economy in which the demand for money is of the formY / (1 + it) for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The real interest rate, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the money supply will grow at 2 percent forever, that is,M0 = 100, M1 = 100, M2 = (1.02)M1, M3 = (1.02)M2, and so on. A . Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1, M1 / P1 and, E1π2. B . Find the inflation rate, nominal interest rate, real money balance in period 2, and expected inflation in period 3, given the information available in period 2, π2, i2, M2 / P2 and E2π3. C . Compare E1π2 and π2.

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