C = 50 + 0.9 · (Y – T)I = 50 - 1000 -rwhere Y is real output and r is the real interest rate. Government purchases and taxes areĞ = 500, T = 500.The money market equilibrium curve-or LM curve-isM YP 5iwhere P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplyingM = 10000 units of money, and expected inflation is aº = 0.05. The long-run aggregate supply (LRAS) isY, = 1000.Suddenly, there is a climate shock that changes the marginal propensity to consume (MPC), and theconsumption function changes toC' = 50 + 0.8 - (Y – T).4. Which, if any, of the graphs from Appendix B best depicts the long-run change in output and pricedue to the climate shock? Explain.5. Fill in the following table in your answer sheet with numbers there are 12 numbers to solve for.You do not need to create a table when you type your answers, but please clearly indicate "Before","After" and the name of each variable, followed by your answer.Y C I r(%) _i (%) Pbefore:after: Appendix B Graphs for Q1.4 and Q2.3PricePricelevelYAlevelY.GDPGDPY.'Y,(a)Y,'(b)PricetlevelPricelevelPP'PP'-Y,'GDPGDPY,'Y,Y,(c)(d)

Given: The consumption and investment function are: C = 50 + 0.9 · Y - TI = 50 - 1,000 · r The…

C = 50 + 0.9 · (Y – T) I = 50 – 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are G = 500, Ť = 500. The money market cquilibrium curve-or LM curve-is M Y where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 10000 units of money, and expected inflation is #ª = 0.05. The long-run aggregate supply (LRAS) is Y, = 1000. Suddenly, there is a climate shock that changes the marginal propensity to consume (MPC), and the consumption function changes to cns C' = 50 + 0.8 · (Y – T). 4. Which, if any, of the graphs from Appendix B best depicts the long-run change in output and price due to the climate shock? Explain. 5. Fill in the following table in your answer sheet with mumbers there are 12 mumbers to solve for. You do not need to create a table when you type your answers, but please clearly indicate “Before", "After" and the name of cach variable, followed by your answer. Y CI r (%) i(%) P before: after:

C = 50 + 0.9 · (Y – T) I = 50 – 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are G = 500, Ť = 500. The money market cquilibrium curve-or LM curve-is M Y where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 10000 units of money, and expected inflation is #ª = 0.05. The long-run aggregate supply (LRAS) is Y, = 1000. Suddenly, there is a climate shock that changes the marginal propensity to consume (MPC), and the consumption function changes to cns C' = 50 + 0.8 · (Y – T). 4. Which, if any, of the graphs from Appendix B best depicts the long-run change in output and price due to the climate shock? Explain. 5. Fill in the following table in your answer sheet with mumbers there are 12 mumbers to solve for. You do not need to create a table when you type your answers, but please clearly indicate “Before", "After" and the name of cach variable, followed by your answer. Y CI r (%) i(%) P before: after:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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C = 100 + 0.5 - (Y – T) I = 200 – 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are G= 300, Ť= 200. The LM (money market equilibrium) curve is M Y 10i where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 2000 units of money, and expected inflation is a“ = 0.02. Assume that the long-run equilibrium level of output is Y = 1000. Short-run equilibrium output is initially at the same level (Y = 1000). Suddenly, news of a new world-beating super-vaccine raises the investment function to I = 250 – 1000 -r Question 1 Derive the long-run equilibrium values of output Y, consumption C, private and public savings Sprivate and Spublie, investment I, the real and nominal interest rates (r, i) and price P, before and after the vaccine news shock. In particular: 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…