C = 100 + 0.5 - (Y –Ť)I = 500 – 1000 -rwhere Y is real output and r is the real interest rate. Government purchases and taxes areG = 500, Î= 100.The LM (money market equilibrium) curve isYwhere P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplyingM = 8000 units of money, and expected inflation is a = 0.Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initiallyat the same level (Y = 2000).Suddenly, news of a new world-beating super-vaccine raises expected inflation to = 0.05.1. Explain how the long-run values of (r, i) are determined before the vaccine news shock.2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s)due to the vaccine news shock? Explain.3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock.Appendix A Graphs for Q1.2 and Q2.3RealRealIerestIreresaRateRateIr)Tir)SavingsvesimentSavinguInvesinent(a)(b)NominalinterestRealISnterestRateRateLMLMi=rGDPGDP(e)(d)

Given; C=100+0.5(Y-T) I= 500-1000r G=500 T=100 Y=2000 LM Curve is; MP=Y5i where; P=…

C = 100 + 0.5 - (Y – T) 1 = 500 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are G=500, T = 100. The LM (money market equilibrium) curve is M Y P where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 8000 units of money, and expected inflation is xª = 0. Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially at the same level (Y = 2000). Suddenly, news of a new world-beating super-vaccine raises expected inflation to x = 0.05. 1. Explain how the long-run values of (r, i) are determined before the vaccine news shock. 2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s) due to the vaccine news shock? Explain. 3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock. Appendix A Graphs for Q1.2 and Q2.3 ir Saving nvesment Savings mesnet (b) erest Rate GDP GDP (4)

C = 100 + 0.5 - (Y – T) 1 = 500 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are G=500, T = 100. The LM (money market equilibrium) curve is M Y P where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 8000 units of money, and expected inflation is xª = 0. Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially at the same level (Y = 2000). Suddenly, news of a new world-beating super-vaccine raises expected inflation to x = 0.05. 1. Explain how the long-run values of (r, i) are determined before the vaccine news shock. 2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s) due to the vaccine news shock? Explain. 3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock. Appendix A Graphs for Q1.2 and Q2.3 ir Saving nvesment Savings mesnet (b) erest Rate GDP GDP (4)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Those economists who believe that monetary policy is more potent than fiscal policy argue that the: A) responsiveness of money demand to the interest rate is large. B) responsiveness of money demand to the interest rate is small. C) IS curve is nearly vertical. D) LM curve is nearly horizontal.
C = 100 + 0.5 - (Y – T') I = 500 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are Ğ = 500, Ť = 100. The LM (money market equilibrium) curve is Y 5i where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 8000 units of money, and expected inflation is a = 0. Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially at the same level (Y = 2000). Suddenly, news of a new world-beating super-vaccine raises expected inflation to = 0.05. Question 5 Suppose that consumers finally decide to get rid of cash altogether, and only use debit cards. Nothing else changes, and the CB doesn't do anything either. What do you think will happen to money supply M and prices P in the short and long-runs? Does this change money demand?
=0. An economy is described by the following equations: AD: SRAS: Okun's law: Y = 4000 + 2(M/P) Y = ybar + 100(P-P) (Y-ybar)/ybar =-2(u-ubar). Assume ybar 6000 and ubar=0.05. = A) Suppose that the nominal money supply has long been at M = 4000 and is expected by the public to remain constant forever. The equilibrium value of P is The equilibrium value of P is, The equilibrium value of Y is, The equilibrium value of u is The equilibrium value of x is, (2 points each) B) A totally unexpected increase in in the money supply occurs, raising it from 4000 to 5250. [Part B is for extra credit] The short run equilibrium value of P is The short run equilibrium value of Pe is_ The short run equilibrium value of Y is The short run equilibrium value of u is. The value of unanticipated inflation, which is defined as (P-P)/P, is, The value of the slope of the short-run Phillips curve is (2 points each)
Please help me with 6. Thank you
Higher potential output levels without any monetary policy intervention will lead to Multiple Choice higher real interest rates. lower real interest rates and higher inflation rates. lower real interest rates and lower inflation rates. higher real interest rates and lower inflation rates.
Desired consumption is Cd = 100 + 0.8Y - 500r - 0.5G, and desired investment is I d = 100 - 500r. Real money demand is Md/P = Y - 2000i. Other variables are: expected inflation = 0.05, G = 200, y
C = 100 + 0.5 · (Y – T) I = 500 – 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are Ğ = 500, T = 100. The LM (money market equilibrium) curve is MY P 5i where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 8000 units of money, and expected inflation is a = 0. Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially at the same level (Y = 2000). Suddenly, news of a new world-beating super-vaccine raises expected inflation to = 0.05. 1. Suppose the government (not the CB) wants to stabilise the shock in the short-run. Explain whether it should increase the government deficit (AĞ > AT) or reduce it (AĞ < AT), and how it works. 2. Now suppose the government doesn't do anything, and the CB wants to stabilise the shock in the short-run. Explain whether it should decrease or increase money supply M if it wants to bring output Y back to…
(b) Use the IS-LM model to illustrate graphically the final impact of the reduction in government spending on output and interest rates under two possible scenarios: i) The Central Bank holds the money supply constant. ii) The Central Bank holds the level of output constant.
Consider the following:The US public debt now stands at approximately $22 trillion, making the country the largest debtor nation in the world. Current US real GDP is approximately $19.5 trillion. One option for debt repayment for the US central bank is to create new money and then pay debt holders as needed. What effect would pursuit of this option have on long run inflation in the US?
If actual output stays above potential output for some time, then we should expect to rise and the Fed to respond by raising unplanned inventory investment; money supply inflation; interest rates unemployment rate; interest rates money supply; interest rates
Change in the money supply
If the Federal Reserve wanted to offset a cyclical downturn in overall expenditures, it should sell bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level. buy bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level. sell bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level. buy bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.