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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Which of the following is an effective fiscal tool to control inflation in boom times?a) Reducing government spendingb) Increasing government spendingc) Decreasing taxationd) Increasing money supply
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?
The economy is currently at the potential level of GDP when the Bank of Canada announces that they will decrease the nominal money supply, which will cause the following sequence of events to occur: The money supply curve will [ Select ] .As the equilibrium interest rate [ Select ] money demand will [Select ] (illustrated as [ Select ] ) and bond demand will [Select ] Specifically, investors will prefer the [Select] causing the domestic currency to experience [ Select ] This change in the foreign exchange rate is shown as [ Select ] v the interest parity curve. In response to changes in the money market and foreign exchange market, desired investment will [ Select ] and exports will [Select ] ; both of these changes will cause (Select ] and (Select ] This will result in (Select ] v GDP and a [Select ] v price level. The economy is currently experiencing (Select ]
=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)
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Please help me with 6. Thank you
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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…
The quantity theory of money says that changes in nominal money lead to equivalent changes in the price level and: have an uncertain effect on output and employment. reduce output and employment. have no effect on output and employment. increase output and employment.
(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.