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 consumptionand investment functions are, respectivley,C = 100 + 0.8(Y –- T),I = 100 – 2000r,%3Dthat is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is200iThe government is currently implementing a policyĞ = 80,T = 50,%3Dand the central bank (CB) is supplying M = 1000.Expected inflation is aº = 0.Suppose that pre-Covid, short-run output was equal to long-run output at Y = 1000. Fill in the following table that describes this short-runequilibrium. That is, solve for the values of the nominal interest rate, short-run price level, consumption, and investment.I'%

C = 100 + 0.8(Y-T) I = 100-2000r G = 80 T = 50 Since, rate of inflation is 0, therefore, nominal…

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, %3D that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is 200i The government is currently implementing a policy Ğ = 80, T = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is a“ = 0. Suppose that pre-Covid, short-run output was equal to long-run output at Y = 1000. Fill in the following table that describes this short-run equilibrium. That is, solve for the values of the nominal interest rate, short-run price level, consumption, and investment. i* P* C' I'

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, %3D that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is 200i The government is currently implementing a policy Ğ = 80, T = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is a“ = 0. Suppose that pre-Covid, short-run output was equal to long-run output at Y = 1000. Fill in the following table that describes this short-run equilibrium. That is, solve for the values of the nominal interest rate, short-run price level, consumption, and investment. i* P* C' I'

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 M Y 200 The government is currently implementing a policy = 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 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. Now suppose the government does nothing, and the CB wants to stabilise the economy with a constant r-target policy. a) The CB must react by • money supply, to b) Due to the CB's monetary policy, the LM curve c) Output, Y, changes to d) Consumtpion, C, changes to e) Private investment, I,…
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(I) The IS curve is Y=1600-100i, LM curve is defined as 0,5Y-50i=200. Assume that the multiplier of autonomous expenditures is 4. Now government spending increases by 100. 1) Find maximum potential increase of output (i.e. in absence of crowding-out effect). 2) Find actual increase of the output. 3) Find crowding-out effect. (II) If the multiplier of autonomous expenditure is equal to 2, the equation of the curve IS given as Y = 360 - 16i, where i-nominal interest rate, Y- the level of output, and the equation of the curve LM is set to 100 = 0,5Y- 8i, the rise of the government spending by 80 leads to an increase of the equilibrium output in the short term by: