Consider the following graph. The IS curve representing the goods market is drawn as the usual downwardrate (EFFR) was 5.08%. Long-term trend output is given by the vertical line at Y*sloping curve. The ONRRP for May 2023 was 5.05% and the IORB was 5.15%. The effective federal funds5.405.305.155.05Y*Y=C(Y-T,W)+I(Y,r)+GY1. At the May 2023 band between the IORB and the ONRRP is the Fed able was the EFFR high enough tolower aggregate demand to target Y*? Explain.2. In July 29, 2023 the Fed raised both the IORB and ONRRP by 0.25 percentage points (to 5.3 and 5.4%).The EFFR is currently 5.38%. According to the graph, is this range high enough for the Fed be able to use theEFFR to target Y*? Explain.3. If the current level of the EFFR in the band between IORB and ONRRP causes housing prices to fall, couldoutput fall below trend output? Explain. Illustrate in the graph above.5

Step 1 At the May 2023 band between the IORB and the ONRRP, is the Fed able to use the EFFR high…

Answered: Consider the following graph. The IS…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Labor Market Y = α (5N – 0.0025N2), where α = 2; N = labor The supply of labor, NS isNS = 55 + 10(1-t)w where t- tax rate = 0.5, w = real wage rate Good Market The desired consumption, Cd is Cd = 300 + 0.8(Y – T) – 200rWhere Y = income, T = taxes, r = real interest rate T= 20 + 0.5YG= 50Desired investment, Id:Id = 258.5 – 250r Money Market Demand for money, Md/P: Md/P = 0.5Y – 250(r + πe), where πe = 0.02 (expected inflation) Money supply = Ms = 9150 a)Find the equilibrium w, Y and N.b)Find the IS-curve and the equilibrium r, C and I.c)Find the LM-curve and the equilibrium P.d)If G increased to 72.5, find the equilibrium w, P, N, r, C and I.e)Discuss the differences between the equilibrium values in d) with a), b) and c). What is your conclusion with regard to the effectiveness of fiscal policy in this model?
41
Given this model, what would be the new equi8librium level of income were Investment spending to decline by 50?
Use the following information to answer questions 21-25. GDP () is 10,000. Consumption (C). is given by the equation C= 1,000+ 0.75(Y-7). Investment (/) is given by the equation /= 1,000-100r, where r is the real interest rate in percent. Taxes (7) are 2,000 and government spending (G) is 2,200. Equilibrium interest rate (r) can be found by setting: Select one: OA. S=1 OB. Y=C+I+G OC. Both (a) and (b) OD. None of the above
30______________________The Federal Reserve, the central bank of the United States, has been cutting the interest rate in order to stimulate the recessionary economy. Interest cuts by the Federal Reserve are supposed to: FILL IN THE BLANK A). increase investment spending and thus increase GDP via the multiplier. B.) increase cash holding by the general public thus lowering their dependence on credit. C). increase government spending on the economic infrastructure and thus increase GDP through the multiplier process. D). lower the savings rate in the economy and stop leakages. _ E) all of the above
None
The IS-LM model for a closed economy is given below, where Y is the output, C is the consumption, I is the investment, T is the income tax, Md is the money demand, P is the price level, r is the real interest rate, n is expected inflation rate and G is the government expenditure. C = 200 + 0.8 (Y – T) – 500 r 1 = 200- 500 r %3D T = 20 +0.25 Y %3D Ma = 0.5 Y- 250 (r+n°) If G= 196, n° 0.1, the nominal money supply equals 9890 and the full %3D employment output equals 1000, the full employment equilibrium price level in (in integer) the economy is
Consider a macroeconomy where the current population is 0.8 million people. Gross domestic private investment is constant $2000 million while consumer expenditure is described by the equation: C = 540+ 0.8DI. The government is fairly active, with a total expenditure of $3500 million and net taxes of $2550 million. Further investigation of the macroeconomy reveals that imports are constant at $3000 million while exports are constant at $2000 million. Currently, the overall price level (GDP deflator) is 118 and the potental GDP level is $13.5 billion. (Question 1 of 7) What is the current equilibrium level of real GDP? (report your answer at 2 decimal places and in millions of dollars)
Consider a small macroeconomy located near the South Pacific Ocean where the current interest rate is 15 percent and the potential level of real GDP equal to $2.7 billion. Consumers spending behavior is described by the equation: C = 175 + 0.8DI, while firm's investment spending behavior is described by the equation: 1 = 60 + 0.25Y-750r. Trade is allowed and currently, total exports is fixed at $150 million while total imports is described by the equation: IM = 320 + 0.1Y. The government's spending is fixed at $840 million and net taxes is described by the equation: T=50 +0.25Y. (Question 3 of 6) Consider that actual rate of unemployment is 5 percent and the current government decides to implement a monetary policy to stabilize the current economic environment. What more can be said about the government's policy and its expected impact on the economy? (complete the sentences below) As a result of this policy One would expect that this would lead aggregate demand to ✓ and ✓ Holding all…
Consider a small macroeconomy located near the South Pacific Ocean where the current interest rate is 15 percent and the potential level of real GDP equal to $2.7 billion. Consumers spending behavior is described by the equation: C = 175 + 0.8DI, while firm's investment spending behavior is described by the equation: I = 60 + 0.25Y-750r. Trade is allowed and currently, total exports is fixed at $150 million while total imports is described by the equation: IM = 320 +0.1Y. The government's spending is fixed at $840 million and net taxes is described by the equation: T=50 + 0.25Y. (Question 1 of 6) What is the current equilibrium level of GDP (in millions of dollars)? (report your answer at 3 decimal places)
Note: Hand written solution is not accepted.
Question 2: Consider a model exactly like that in Question 1 - where the person receives income $48,326 - in period 1 and additional income $44,928 in period 2 except let's now suppose that the person faces a liquidity constraint. Specifically, she can still save at an interest rate of 4%, but if she borrows, then she must pay an interest rate of 8%. (a) If the person wants to save, the relevant interest rate is 4%. For what values of 8 is it optimal to save? [Hint: You already know the answer from Question 1.] (b) If the person wants to borrow, the relevant interest rate is 8%. (i) Suppose the interest rate is 8%, and solve for the optimal c₁ and c₂ as a function of 8. (ii) If the interest rate is 8%, for what values of 8 is it optimal to borrow? [Note: Please report your answer to 5 decimal points.] (c) Given the liquidity constraint, for what values of 8 is it optimal to neither borrow nor save? [Hint: Two conditions must hold: (i) 8 must be such that the person does NOT want to…

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