Consider the following economy: cd = 230 + 0.60(Y - T)- 460 d = 240 - 480/r L = 0.4Y- 540/ Y = 1,000 Desired consumption: Desired investment: Real money demand: Full-employment output: Expected inflation: * = 0. This is a classical model with no misperceptions about the price level. a. Suppose thatT=G= 200 and that M = 7,850. The equation describing the IS curve is: IS: Y= 1375 - 2350r. The equation describing the LM curve is: LM: Y= 19625 P + 1350r. Using the IS and LM equations, the equation for the aggregate demand curve that shows the relationship between Yand Pis: AD: Y= 502 + 12465 In general equilibrium, output = 1,000, the price level = 25.01, the real interest rate = 15.96%, consumption = 636.6, and investment = 163.4. b. Suppose that the money supply rises to 9,350. What is the new equation for the AD curve? AD: Y-L+미리. (Enter each response rounded fo the noares! whole nurmber.)

Consider the following economy: cd = 230 + 0.60(Y - T)- 460 d = 240 - 480/r L = 0.4Y- 540/ Y = 1,000 Desired consumption: Desired investment: Real money demand: Full-employment output: Expected inflation: * = 0. This is a classical model with no misperceptions about the price level. a. Suppose thatT=G= 200 and that M = 7,850. The equation describing the IS curve is: IS: Y= 1375 - 2350r. The equation describing the LM curve is: LM: Y= 19625 P + 1350r. Using the IS and LM equations, the equation for the aggregate demand curve that shows the relationship between Yand Pis: AD: Y= 502 + 12465 In general equilibrium, output = 1,000, the price level = 25.01, the real interest rate = 15.96%, consumption = 636.6, and investment = 163.4. b. Suppose that the money supply rises to 9,350. What is the new equation for the AD curve? AD: Y-L+미리. (Enter each response rounded fo the noares! whole nurmber.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms. b. How does the misperception theory work? c. Which of the three markets discussed in class is first affected (labor, goods, or asset market)? Explain and show graphically how this market is affected by an unanticipated increase in the nominal money supply.
Consider a short-run IS-LM model where MPC -0.75. Suppose that taxes are initially given by T=1500. Suppose also that MPC = 0.75. Then, if decreases by 1000, then for any given interest rate, the IS curve shifts: to the right by 1000. to the right by 4000. Oto the left by 1000. to the right by 3000.
Suppose the price level in the economy is fixed at P and the exogenous money supply is given by M, Suppose the LM curve for these values of exogenous variables is drawn as in the figure below where Y is aggregate output and r is interest rate. Consider two points A and B in the diagram Assuming all exogenous variables remain unchanged, pick the correct relation between the nominal money demand Md at point A and point B. Scroll down to view the full image. C A MAYA,TA) > Md(YB, TB) B Md(YA,TA)=Md(YB, TB) M(YA,TA)
Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y How much investment (I) will be crowded out if the government increases its purchases by deltaG = 160 and nominal money supply (M) remains unchanged?
1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
I Graphical Analysis 1. Using the AE-PC Model illustrate graphically the impact of each these factors in separate and neatly labeled diagrams. You need to identify the impact on a particular curve, the direction of shift and the resulting impact on the equilibrium interest rates, inflation rates and GDP. Note: Label the axis please. (a) There is a sudden rise in oil prices (b) The US government raises spending.
Price level in January 2051 is 98.1
In the classical model, a temporary decrease in government purchases causes the IS curve and the FE line to shift to the left. In general equilibrium, if the IS curve shifts to the left more than the FE line does, the real interest rate will be before the shock. A. higher than B. the same as it was C. lower than
a) consider the following IS–LM model: C = c1(Y - T) I = b1Y - b2i M/P = d1Y - d2i Solve for equilibrium output. Assume c1 + b1 < 1. b) Solve for the equilibrium interest rate. (Hint: Use the LM relation.) c) Solve for investment.
This is on the basics of the IS-LM model. The model is given by the following system of equations Y = C(Y;Y;r; A) + I(Y;r; K) M/P = Y/V(i) where ri- and A denotes the wealth of the households. The rest of the notations are standard. What happens to the IS curve when the stock of capital increases? Select one or more: a. A movement along the IS curve b. IS shifts to the right c. Nothing d. IS shifts to the left
1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
Q17. Summarize the Keynesian model: A. The Keynesian model emphasizes aggregate supply by focusing on the underlying determinants of output and employment in markets, and thus tends to put more emphasis on economic growth and how labor markets work. B. The short-term Keynesian model is built on the importance of aggregate demand as a cause of business cycles and a degree of wage and price rigidity, and thus does a sound job of explaining many recessions and why cyclical unemployment rises and falls. C. The short-term Keynesian model is built on the importance of aggregate supply as a cause of business cycles and a degree of wage and price rigidity, but does a poor job of explaining many recessions and why cyclical unemployment rises and falls.