Question 34Assume that in a certain economy, the LM curve is given by Y = 2,000r - 2,000 + 2 (M/ P) + u, whereis a shock that is equal to +200 half the time and -200 half the time, and the IS curve is given by Y =8,000 - 2,000r. The price level (P) is fixed at 1.0. The natural rate of output is 6,000. The governmentwants to keep output as close as possible to 6,000 and does not care about anything else.Consider the following two policy rules:i. Set the money supply M equal to 2,000 and keep it there.ii. Manipulate M from day to day to keep the interest rate constant at 2 percent.Under rule i, what will Y be when u = -200?

The lumen curve depicts the set of all levels of financial gain (GDP) and interest rates at that…

Assume that in a certain economy, the LM curve is given by Y = 2,000r - 2,000 + 2 (M / P) + u, wh is a shock that is equal to +200 half the time and -200 half the time, and the IS curve is given by 8,000 - 2,000r. The price level (P) is fixed at 1.0. The natural rate of output is 6,000. The governm wants to keep output as close as possible to 6,000 and does not care about anything else. Consider the following two policy rules: i. Set the money supply M equal to 2,000 and keep it there. ii. Manipulate M from day to day to keep the interest rate constant at 2 percent. Under rule i, what will Y be when u = -200?

Assume that in a certain economy, the LM curve is given by Y = 2,000r - 2,000 + 2 (M / P) + u, wh is a shock that is equal to +200 half the time and -200 half the time, and the IS curve is given by 8,000 - 2,000r. The price level (P) is fixed at 1.0. The natural rate of output is 6,000. The governm wants to keep output as close as possible to 6,000 and does not care about anything else. Consider the following two policy rules: i. Set the money supply M equal to 2,000 and keep it there. ii. Manipulate M from day to day to keep the interest rate constant at 2 percent. Under rule i, what will Y be when u = -200?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1- Consider the following IS-LM model: I= 150 + 25Y - 1000i, (M/P 2Y 8000i, G=250, T= 200 C=200 + 25YD. NX 0, M/P = 1600. a) Derive the IS relation b) Derive the LM relation. c) Solve for equilibrium real output (Y*). d) Solve for the equilibrium interest rate (i*) e) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. ) Now suppose that the money supply increases to M/P =1,840. Solve for Y, i c, and T, and describe in words the effects of an expansionary monetary policy. g) Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, 1. C. h) The expansionary fiscal policy in part (g) have resulted in large budget deficit (T= G = 200 – 400 = -200). Suggest a policy mix to decrease fiscal deficit to achieve a balanced budget (T = G = 0). b(Ctrl) - 立

Only typed answer
Assume that the economy is initially operating at the natural level of output. Graphically illustrate (using the IS-LM-PC model) how the economy adjusts to a decrease in taxes both in the short run and in the medium run.
I. Taiwan has an income tax rate, t1, of 28% and a Marginal Propensity to Save (MPS) of 0.4. It is in Eqm but is currently suffering from an "inflationary gap" of $350 m. (that is, Eqm Y>Y full employment, FE, aka Yn). Make the necessary calculations for the to policy that should be instituted. Provide the full name of this policy. II. Most economists believe that tariffs are not the best way to reduce the US trade-balance deficit -- the fact that US IM>US X. (Macro problems should be fixed with macro tools and tariffs are a micro tool.) Derive the identity for Y from the expenditure approach for an open economy to discuss what it means when a country is running a trade-balance deficit and whether it is an economic "good" or "bad." Then derive the twin-deficit identity and use it to explain why the US runs trade-balance deficits and what can be done, if anything, to reduce them. Make all your assumptions clear.
Suppose that the government is concerned about keeping pace with this long-term growth and ensuring that it maintains a stable price level in its long-term equilibrium. Therefore, it does act and decides to keep increasing the autonomous demand for investment in order to try and maintain a constant price level in the face of this productivity growth. 3. Does the AD-AS model predict that this strategy could be effective? What would we expect to happen to both p* and the equilibrium interest rates in this example? Explain your answer.
The graph below depicts a decrease in aggregate demand due to a decrease in gross investment. This decrease in aggregate demand is depicted as a shift from AD to AD1. Tools LRAS AS AS1 AD1 AD Real GDP Price Level
If investment increases by 24 billion and the economy's MPC is 0 0.5, the aggregate demand curve will shift rightward by _____ billion dollars at each price level.
If the level of government spending were to increase by If the level of government spending were to increase by 50 units in the IS-LM schedule model, how would this affect the position of the IS schedule? In which direction would the schedule shift and by how many units? If the level of government spending were to increase by
81.Assume that in a certain economy the LM curve is given by Y = 2,000r – 2,000 + 2(M/P), and the IS curve is given by Y = 8,000 – 2,000r + u, where u is a shock that is equal to +200 half the time and –200 half the time. The price level (P) is fixed at 1.0. The natural rate of output is 4,000. The government wants to keep output as close as possible to 4,000 and does not care about anything else. Consider the following two policy rules: i. Set the money supply M equal to 1,000 and keep it there. ii. Manipulate M from day to day to keep the interest rate constant at 2 percent. a.Under rule i, what will Y be when u = +200? What will Y be under rule i when u = –200? b.Under rule ii, what will Y be when u = +200? What will Y be under rule ii, when u = –200? c.Which rule will keep output closer to 4,000? 82.Assume that in a certain economy the LM curve is given by Y = 2,000r – 2,000 + 2(M/P) + u, where u is a shock that is equal to +200 half the…
Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point W. The price level is Po. Now, suppose there is an exogenous fall in the price level to P2. Which of the following statements describes the likely macroeconomic effects? O A. The AE curve shifts to AE₁, a new equilibrium is established at point V, and the AD curve shifts from AD to AD¹, and equilibrium moves from point B to point D. OB. The AE curve shifts to AE2, a new equilibrium is established at point U, and the AD curve shifts from AD to AD¹, and equilibrium from point B to point D. Ⓒ C. The AE curve shifts to AE2, a new equilibrium is established at point U, and the economy moves from point B to point C along AD. O D. The AE curve shifts to AE₁, new equilibrium is established at point V, and the economy moves from point B to point C along AD⁰. Desired Aggregate Expenditure Price Level 759² Y₁ W Yo Y₂ Real GDP AE=Y AE₂ Real GDP AEo AE₁ Q ✔ Q
5
Question 1 There are three policy variables that the government and the Bank of Zambia control that have a major influence on the economy. Draw small sketch graphs and quick indications of the effects on Y and i of each variable moving both up and down while holding the other policy variables constant (i.e. there are six situations to consider). The first one is done for you as an indication of how to do the others: 1. Increase in G IS-LM Model i IS LM, Y increases i increases IS: IS, Y