4. What is the approximate LM relation, of a closed economy, if the central bank sets both an interest rate i = 0.04, and inflation expectations +1 = 0.02? 5. Consider the following equations which describe the closed economy from 4. and derive the IS relation: C= 100+ 0.75Y, I = 400+ 0.15Y - 1000(r+x), G = T= 300, and x = 0.03. 6. Solve the IS-LM model, from 4. and 5., for the equilibrium level of output, consumption and investment.

4. What is the approximate LM relation, of a closed economy, if the central bank sets both an interest rate i = 0.04, and inflation expectations +1 = 0.02? 5. Consider the following equations which describe the closed economy from 4. and derive the IS relation: C= 100+ 0.75Y, I = 400+ 0.15Y - 1000(r+x), G = T= 300, and x = 0.03. 6. Solve the IS-LM model, from 4. and 5., for the equilibrium level of output, consumption and investment.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 1CQQ

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Similar questions

M1
Explain if, and why, you agree, or do not agree, with the following statement [when answering, assume that, in each time period, the economy is described by a static IS-LM model, with consumption and investment depending on contemporaneous variables only]:"In a closed economy wherke the central bank chooses the money supply, the prices of stocks at time t, €Qt, will unambiguously rise if, from time t onwards, government purchases of goods and services, G, go up".
Question 4. Consider an IS-LM model. Suppose the central bank increases the money supply by 5 percent. But the price level also increases increase by 10 percent. Part a What will be the change in LM curve? What will be the change in equilibrium interest rate and output? Explain properly using a graph?
Consider the following short-run IS-LM model. Assume the central bank targets the nominal interest rate and expected inflation is zero. C = 300 + .50YD I = 1000 + .10Y – 5000i G = 700 T = 600 M/P = 100 + .25Y - 6250i P = 1 i = .06 Y-T = YD Solve for the IS equation and the LM equation. Find the equilibrium and also show it on a graph of IS-LM. Find the equilibrium values for C, I, and the money supply M. Consider a fiscal stimulus: what is the impact on Y if G rises by 100? What is the impact on I in this case? What is the impact on the interest rate and the money supply? Return to your original analysis. Consider a monetary stimulus where the central bank sets a new target interest rate, i = .04. Find the new equilibrium values for Y, C, and I. Find and discuss any change in the money supply. What causes the change in I in this case? Explain.
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3
Consider an economy that may be represented by the following short-run IS-LM model described by equations (1) through (6): (1) C 200+ 0.8(Y-T) (2) T = 800 (3) G = 500 (4) 1 700 - 25 r (5) Y=C+I+G (6) M/P = 0.6Y - 60r where the nominal money supply is M-600 and the price level is P = 1. Suppose that the government increases its expenditures by 100 units, but the Bank of Canada would like to maintain the interest rate constant. Then, (approximately) the money supply must decrease by 125.5 units and equilibrium output increases by 200 units. the money supply must decrease by 100 units and equilibrium output increases. by 250 units. the money supply must increase by 300 units and equilibrium output increases by 500 units the money supply must increase by 60 units and equilibrium output increases by 100 units.
Consider the following IS-LM model:C=200+0.25YdI=150+0.25Y-1000iG=250T=200Real Money Demand=M/P=2Y-8000iReal Money Supply=1600a. Derive the IS relation.b. Derive the LM relation.c. Solve for equilibrium real output and interest rate and show it in a graph, draw IS and LM curves.d. Solve for values of C, G and I and verify that they add up to Y you obtained in part c.e. Now suppose that the money supply increases to M/P=1840. Solve for Y, i, C and I and describe inwords the effects of an expansionary monetary policy. Show the change in a graph.f. Set M/P to its initial value of 1600. Now suppose that government spending increases to G=400.Summarise the effects of an expansionary fiscal policy on Y, i, C. Use a graph to show the shift in ISand/or LM.
Consider an IS-LM model. Suppose the central bank increases the money supply by 5 percent. But the price level also increases increase by 10 percent. Part 1What will be the change in LM curve? What will be the change in equilibrium interest rate and output? Explain properly using a graph?Part 2What will be the change in the AD curve? (Hint: first derive the AD curve from IS-LM model and then consider whether AD will shift to the left or right given the change in LM curve) Given that the SRAS curve is horizontal, what will be the impact of change in AD on price level?
Discuss in detail the limitations of the IS-LM Model. Why is it unrealistic for today’seconomies?
Hi can you please help with explanations and calculations? 1. Draw a Mundell-Fleming model labelling all curves and axis. Make sure you include the full employment level of output and the world interest rate. Why does the IS curve slope down and why does the LM curve slope up? (use intuition or maths)2. For a monetary expansion under a floating rate (ignoring the effects of the output gap on prices for now), explain carefully why the LM curve shifts right, and then the IS curve shifts right3. What is the output gap and why is it important for macroeconomic management? Once the output gap effects have taken place, describe the path back to equilibrium for a monetary expansion under a floating rate and outline the meaning of money neutrality.
Assume that the economy is initially operating at full employment. Analyze the effect ofan increase in the nominal money supply using the IS-LM model. What happens to real output and interest rate in the long-run (what is the new long-runequilibrium)? Explain and show graphically