Consider the economy of Eagle Republic with the following numerical example of the IS-LM model: C 200 + 0.25 (Y- T) | = 150 + 0.25 Y-1000 i G = 250 T= 200 a. Derive the equation for the IS curve. Answer: Y = [ Select ] [ Select ] b. The Fed sets interest rate i = 5%. What is the output (Y) in this economy. Answer: Y = [ Select ] c. Suppose that the demand for money (Md) is given by the following equation: Md = 2 Y - 8000 i What is the level of real money supply (Ms) when the interest rate is 5%? Hint: At the equilibrium in the financial market, Ms = Md. Then, use Y and i in part (b) to solve for Ms. Answer: Ms = [ Select ]
Consider the economy of Eagle Republic with the following numerical example of the IS-LM model: C 200 + 0.25 (Y- T) | = 150 + 0.25 Y-1000 i G = 250 T= 200 a. Derive the equation for the IS curve. Answer: Y = [ Select ] [ Select ] b. The Fed sets interest rate i = 5%. What is the output (Y) in this economy. Answer: Y = [ Select ] c. Suppose that the demand for money (Md) is given by the following equation: Md = 2 Y - 8000 i What is the level of real money supply (Ms) when the interest rate is 5%? Hint: At the equilibrium in the financial market, Ms = Md. Then, use Y and i in part (b) to solve for Ms. Answer: Ms = [ Select ]
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
100%
![b. The Fed sets interest rate i = 5%. What is the output (Y) in this economy. Answer: Y = Select
[ Select ]
%3D
c. Suppose that the demand for money (Md) is given by the following equation:
Md = 2 Y - 8000 i
What is the level of real money supply (Ms) when the interest rate is 5%? Hint: At the equilibrium in the financial market, Ms = Md. Then, use Y and i in part (b)
to solve for Ms.
Answer: Ms
[ Select ]
%3D
d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (1)?
Answer: C = [Select]
v and | = [ Select ]
To verify your answer, you can calculate C +I + G to see if you can get the value of output Y.
e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What
level of money supply (Ms) should the Fed target to achieve the interest rate at 3%?
Answer: Y = [Select]
;| =
[ Select ]
and C =[Select ]
%3D
The reduction in the interest rate Select ]
output. As a result, consumption [Select]
and investment
[ Select ]
f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this
expansionary fiscal policy on Y, I, and C.
Answer:
At the initial interest rate of 5%, Y equals [Select ]
when G is increased to 400. A fiscal expansion increases output. Consumption
increases because output increases. When the Fed keeps interest rates at 5% then investment increasés as output increases, The new level of investment (1) is
[ Select ]
The new level of consumption (C) is [ Select]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa61d3153-2818-4412-8cd6-ecbf1177ab6e%2F482b4c75-ab9c-4e3c-88c3-af2138597a67%2Frcg4ie6_processed.jpeg&w=3840&q=75)
Transcribed Image Text:b. The Fed sets interest rate i = 5%. What is the output (Y) in this economy. Answer: Y = Select
[ Select ]
%3D
c. Suppose that the demand for money (Md) is given by the following equation:
Md = 2 Y - 8000 i
What is the level of real money supply (Ms) when the interest rate is 5%? Hint: At the equilibrium in the financial market, Ms = Md. Then, use Y and i in part (b)
to solve for Ms.
Answer: Ms
[ Select ]
%3D
d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (1)?
Answer: C = [Select]
v and | = [ Select ]
To verify your answer, you can calculate C +I + G to see if you can get the value of output Y.
e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What
level of money supply (Ms) should the Fed target to achieve the interest rate at 3%?
Answer: Y = [Select]
;| =
[ Select ]
and C =[Select ]
%3D
The reduction in the interest rate Select ]
output. As a result, consumption [Select]
and investment
[ Select ]
f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this
expansionary fiscal policy on Y, I, and C.
Answer:
At the initial interest rate of 5%, Y equals [Select ]
when G is increased to 400. A fiscal expansion increases output. Consumption
increases because output increases. When the Fed keeps interest rates at 5% then investment increasés as output increases, The new level of investment (1) is
[ Select ]
The new level of consumption (C) is [ Select]
![Consider the economy of Eagle Republic with the following numerical example of the IS-LM model:
C = 200 + 0.25 (Y- T)
| = 150 + 0.25 Y- 1000 i
G = 250
T 200
a. Derive the equation for the IS curve. Answer: Y = Select ]
[ Select ]
b. The Fed sets interest rate i = 5%. What is the output (Y) in this economy. Answer: Y = 1Select
%3D
c. Suppose that the demand for money (Md) is given by the following equation:
Md = 2 Y - 8000 i
What is the level of real money supply (Ms) when the interest rate is 5%? Hint: At the equilibrium in the financial market, Ms = Md. Then, use Y and i in part (b)
to solve for Ms.
Answer: Ms = [ Select ]
d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (I)?
Answer: C = [ Select ]
and I
[ Select ]
To verify your answer, you can calculate C+I+ G to see if you can get the value of output Y.
e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What
level of money supply (Ms) should the Fed target to achieve the interest rate at 3%?
Answer: Y = [ Select ]
[ Select ]
and C =
[ Select ]
The reduction in the interest rate
[ Select ]
output. As a result, consumption ISelect]
and investment
[ Select ]
f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this
expansionary fiscal policy on Y, I, and C.
<>](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa61d3153-2818-4412-8cd6-ecbf1177ab6e%2F482b4c75-ab9c-4e3c-88c3-af2138597a67%2Filfeem_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider the economy of Eagle Republic with the following numerical example of the IS-LM model:
C = 200 + 0.25 (Y- T)
| = 150 + 0.25 Y- 1000 i
G = 250
T 200
a. Derive the equation for the IS curve. Answer: Y = Select ]
[ Select ]
b. The Fed sets interest rate i = 5%. What is the output (Y) in this economy. Answer: Y = 1Select
%3D
c. Suppose that the demand for money (Md) is given by the following equation:
Md = 2 Y - 8000 i
What is the level of real money supply (Ms) when the interest rate is 5%? Hint: At the equilibrium in the financial market, Ms = Md. Then, use Y and i in part (b)
to solve for Ms.
Answer: Ms = [ Select ]
d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (I)?
Answer: C = [ Select ]
and I
[ Select ]
To verify your answer, you can calculate C+I+ G to see if you can get the value of output Y.
e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What
level of money supply (Ms) should the Fed target to achieve the interest rate at 3%?
Answer: Y = [ Select ]
[ Select ]
and C =
[ Select ]
The reduction in the interest rate
[ Select ]
output. As a result, consumption ISelect]
and investment
[ Select ]
f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this
expansionary fiscal policy on Y, I, and C.
<>
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