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 consumpti and investment functions are, respectivley, C = 100 + 0.8(Y – T), I = 100 – 2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is 200 The government is currently implementing a policy Ĝ = 80, Ť = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption functi 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. Fill in the following table for the new values of the nominal interest rate, short-run output, consumption, and investment after the Cov consumption shock. C* I'

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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 – T), I= 100 – 2000r,
that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is
200
The government is currently implementing a policy
= 80,
T = 50,
and the central bank (CB) is supplying M = 1000.
Expected inflation is a = 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 – Ť).
Focus only on the economy's short-run responses, that is, when the price level P cannot adjust.
Fill in the following table for the new values of the nominal interest rate, short-run output, consumption, and investment after the Covid
consumption shock.
I*
Transcribed Image Text: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 – T), I= 100 – 2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is 200 The government is currently implementing a policy = 80, T = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is a = 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 – Ť). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Fill in the following table for the new values of the nominal interest rate, short-run output, consumption, and investment after the Covid consumption shock. I*
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