3. Assume that inflation is zero, so that i = r. This economy's central bank follows a given Monetary Policy Rule: r = i = 0.025 × Y +0.0003 × P , where P is the price level. Given this and the expression for the IS Curve, write down an expression for the Aggregate Demand Curve. (Hint: Remember that the AD Curve takes the form P =....)
3. Assume that inflation is zero, so that i = r. This economy's central bank follows a given Monetary Policy Rule: r = i = 0.025 × Y +0.0003 × P , where P is the price level. Given this and the expression for the IS Curve, write down an expression for the Aggregate Demand Curve. (Hint: Remember that the AD Curve takes the form P =....)
Survey of Economics (MindTap Course List)
9th Edition
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Irvin B. Tucker
Chapter15: Fiscal Policy
Section: Chapter Questions
Problem 9SQ
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first picture is just a resource for the question in the second picture
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![3. Assume that inflation is zero, so that i = r. This economy's central bank follows a
given Monetary Policy Rule: r = i = 0.025 x Y + 0.0003 x P , where P is the price
level. Given this and the expression for the IS Curve, write down an expression
for the Aggregate Demand Curve. (Hint: Remember that the AD Curve takes the
form P =...)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F36c16d30-8080-41a6-9b28-34917665af49%2F3d094752-1248-4c10-89d3-6ce92ed4c940%2Fzmfzgzvl_processed.png&w=3840&q=75)
Transcribed Image Text:3. Assume that inflation is zero, so that i = r. This economy's central bank follows a
given Monetary Policy Rule: r = i = 0.025 x Y + 0.0003 x P , where P is the price
level. Given this and the expression for the IS Curve, write down an expression
for the Aggregate Demand Curve. (Hint: Remember that the AD Curve takes the
form P =...)
![We use the following terminology in this part: aggregate income Y and disposable income
Ya (= Y –T), consumption function C(Ya), planned investment function I(r), government
spending G, and taxation T = tY where t is the marginal tax rate; r% denotes the real
interest rate in the economy. (Note, r is in percentage points, e.g. r = 2 means the interest
rate is 2%. When doing calculations, the interest rate should not simply be inserted in
decimal form. For example, if r = 2 then I(2) = 124 – 2 = 122.)
Consider a hypothetical economy where:
• C(Ya) = 12 + 0.75 × (Y – T)
• I(r) = 124 – 1 × r
• G = 120
• t = 20%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F36c16d30-8080-41a6-9b28-34917665af49%2F3d094752-1248-4c10-89d3-6ce92ed4c940%2Fgh509drr_processed.png&w=3840&q=75)
Transcribed Image Text:We use the following terminology in this part: aggregate income Y and disposable income
Ya (= Y –T), consumption function C(Ya), planned investment function I(r), government
spending G, and taxation T = tY where t is the marginal tax rate; r% denotes the real
interest rate in the economy. (Note, r is in percentage points, e.g. r = 2 means the interest
rate is 2%. When doing calculations, the interest rate should not simply be inserted in
decimal form. For example, if r = 2 then I(2) = 124 – 2 = 122.)
Consider a hypothetical economy where:
• C(Ya) = 12 + 0.75 × (Y – T)
• I(r) = 124 – 1 × r
• G = 120
• t = 20%
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