1. Find the value of autonomous spending. 2. What is the slope of the LM curve? 3. Find the value of the real money supply. C = 1500+ 0.40*(Y-T) I = 600-60*i G = 200 T = 2000 M = 2100 P = 5 L = 0.75Y-25*i
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- 1. Suppose the LM curve is given by (M/P) = d,Y – d̟i . The slope of the LM curve is . If d, is small, i.e. if money demand is. very sensitive) to the level of income, then an increase in income will cause a _(sensitive /not _(small /large) increase in money demand and only a _ (small /large) increase in the interest rate is necessary to restore equilibrium in the money market: the LM curve is relatively _(flat /steep). Similarly, if d, is small, i.e. if the quantity of money demanded is (sensitive /not very sensitive) to the interest rate, then an increase in income will increase money demand and it requires a (small /large) increase in the interest rate to restore equilibrium in the money market: the LM curve is relatively _(flat /steep). 2. For this question, assume that Y = N. Based on our understanding of the labor market model presented in Chapter 6, we know that a reduction in the markup will cause an/a _ (increase, reduction) in the natural level of output. 3. If u ? =? )Consider an economy that is characterized by the following equations: C = 150 + 0.65(Y - T) – 200r (Consumption) (Тахation) (Investment Demand) (Government Expenditure) (Exports) (Imports) T = 100 + 0.2Y I = 200 G = 500 - 200r X = 100 IM = 150 + 0.1(Y – T) – 100r (Money Demand) (Money Supply) L = -25 + 0.5Y - 500r M = 133,200 pSR = 120 (Short-Run Price Level) Answer each of the following questions. In your answers, be sure to state any assumptions that you impose and provide an explanation. Derive the AD and SRAS curves. Solve for the short-run equilibrium in the AD-SRAS model. Is your solution the same as in part 3 above? Why or why not? Is the fiscal multiplier in this economy larger or smaller than if the asset market were not accounted for in the model? Briefly explain. True or false? The aggregate demand curve is downward-sloping because the demand for goods and services increases as the price decreases. Briefly explain.Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C = 100 + 0.8(Y – Ť), 1- 100— 2000г, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M. 200 The government is currently implementing a policy G = 80, Ť = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is T° = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption function changes to C = 40 + 0.8(Y – T). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Derive the new IS curve. It should be written in the form Y = A - Bi, that is, you only need to solve for the values of A = and
- Give typing answer with explanation and conclusion Higher interest rates on business loans usually result in a a, decrease in aggregate supply b. decrease in aggregate demand c. increase in aggregate supply d, increase in aggregate demand e.increase in investmentAn IS curve shows: (a) that realized savings are most likely a function of interest rates, because changes in interest rates result in changes in precautionary demand for money; (b) the combinations of investments and incomes that result in the supply and demand for money being equal to one another; (c) the locus of all combinations of interest rates and incomes that will result in realized investment and realized savings being equal to one another; (d) that increases in output typically are caused by increases in interest rates.If nominal GDP is $1,200 billion and, on average, each dollar is spent three times in the economy over a year, then the quantity of money demanded for transactions purposes will be Multiple Choice 3,600 1,200 800 400 600
- True or false. Explain. 1. For a given level of P (price), is M (nominal money) increases by 10%, M/P also increases by 10%. 2. A monetary expansion leads to a lower output and a higher interest rate. 3. Equilibrium in the financial market implies that an increase in income leads to a decrease in interest rate making the LM curve downward sloping.Question 3: Consider the economy of Ghana. The consumption function is given by C= 400 + 0.8(Y - T). The investment function is I = 600 - 70r. Government purchases is 400. Assume a balanced budget. The money demand function is (MP) = Y - 180r. The money supply Mis 3,000 and the price level P is 3. a. Find the equilibrium interest rate r and the equilibrium level of income Y. b. Suppose that government purchases are increased from 400 to 600. What are the new equilibrium interest rate and level of income? c. Suppose instead that the money supply is increased from 3,000 to 3,500. What are the new equilibrium interest rate and level of income? d. With the initial values for monetary and fiscal policy, suppose that the price level rises from 3 to 5. What are the new equilibrium interest rate and level of income?Q15 Which of the following statements is consistent with a given (i.e., fixed) LM curve? Select one: a. A reduction in the interest rate causes money demand to decrease. b. A reduction in the interest rate causes investment spending to increase. c. An increase in output causes an increase in demand for goods d. An increase in output causes an increase in money demand.