None Consider the following graph. The IS curve representing the goods market is drawn as the usual downwardsloping curve. The ONRRP for May 2023 was 5.05% and the IORB was 5.15%. The effective federal fundsrate (EFFR) was 5.08%. Long-term trend output is given by the vertical line at Y*5.405.305.155.05Y*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

Detailed explanation:Question 1: Analysis of May 2023 RatesStatement: At the May 2023 band between…

Answered: Consider the following graph. The IS…

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 6SQ

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Consider the following graph. The IS curve representing the goods market is drawn as the usual downward sloping curve. The ONRRP for May 2023 was 5.05% and the IORB was 5.15%. The effective federal funds rate (EFFR) was 5.08%. Long-term trend output is given by the vertical line at Y*. 5.40 5.30 5.15 5.05 Y* Y-C(Y-TW)+1(Y)+G Y 3. If the current level of the EFFR in the band between IORB and ONRRP causes housing prices to fall, could output fall below trend output? Explain. Illustrate in the graph above.
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 4 of 6) Consider that actual rate of unemployment is 5 percent and the current government implements a monetary policy to stabilize the current economic environment. Given the government's policy, what will be the new equilibrium level of GDP (in millions of dollars)? (report your answer at 2 decimal places)
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…
0 $75 150 225 Investment ($) Price Level AS Q₁ Real GDP Investment Demand $50 100 150 Investment ($) AD, (/=$50) Z AD, (/=$150) -AD, (/=$100) Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP? 10 S 12 11 13 of 26 ‒‒‒ View previous att Next >
Q4. The historical relation between US GDP growth rate (8GDP) and the Fed fund rate (Fedr) fits a finite distributed lag model. Annual data are collected and the estimated model is: 9GDP, = 5.8 – 0.5 Fedr, - 0.3 Fedr-1-0.1 Fedr-2 where gGDP and Fedr are measured in percentage, i.e. if the Fed fund rate is 2 percent, then Fedr is 2, not 0.02. The Fed fund rate had stayed at an ultra-low level of 2% for the last 5 to 6 years up until yesterday. Today the Fed raises the Fed fund rate to 3% for one year only in order to head off some temporary overheating. The rate will return to 2% one year from now. What would the US GDP growth rate be two years from today? A. 4.1% В. 3.9% С. 3.4% D. 1.9% Е. 1.4%
Country X's long run potential full employment level of Real GDP is estimated to be $24,100,000. However, the current actual Real GDP in country X stands at $ 18,000,000. Additional data shows consumers in country X have a marginal propensity to save (MPS) equal to 7%. Answer the following questions based on the above information. Suppose new calculations show country X faces a recessionary Real GDP = $4,800,000, and the income multiplier is now equal to8. By how much should Autonomous consumption" (spending) increase to close the $4,800,000 recessionary gap?
Q6: If the Marginal Propensity to save (MPS) is the following function of income: 1 S'(Y) = 0.1– 0. 2 Y2, = 0. 1 and if the aggregate saving S is nil when income Y is 70, find the Saving function S( Y). 1 Q7: Suppose that the net investment flow is described by the equation I(t) = 6t7, and that the initial capital stock, at time t= 0, is K(0). What is the time path of capital К? 1 Q8: If I(t) = 3000t7 (thousands of dollars per year) -a nonconstant flow- what will be the capital formation during the time interval [1, 4], i. e. during the second, third, and fourth years?
Consider a frugal closed economy without money market. Assume there is no government or exports/imports. The economy is described by the following set of equations. C =1000+0.5⋅Y ID = 600 1. What is the marginal propensity to save of this economy? a) 0.4 b) 0.5 c) 0.1 d) 0.3 e) 0.2 Currently, the economy is saving a half of the amount it consumes. The level of unplanned inventory change is [0, 600, 200, 1400 , 2000 ] and the economy is [equilllibrium or not at equillibrium,]
The collective market capitalization of stock in American companies increased from $34 trillion at the end of 2019 to $41 trillion at the end of 2020. Not all of the stock is owned by American consumers but for this problem pretend that it is. If the marginal propensity to consume stock wealth is 0.01 then how much would we expect consumption spending to increase due to the increase in the stock wealth? $ billion
In a small closed economy, its aggregate demand and output are given as the equations below, Y = C + I + G; national output or GDP. C = 100 + 0.5(Y-T); consumption, marginal propensity to consume MPC = 0.5. I = 150 – 10*r; investment is a negative function of real interest rate (r as %). (M/P)d = Y – 20*r; real money demand which is adjusted by price level (inflation). G = 200; as government spending. T = 200; as tax. M = 2,400; as money supply. P = 4; the price level. (1) With the equations above, try to derive the IS curve. Tip: recall IS curve represent the relation between national output (Y) and real interest rate (r) in goods market. To derive IS curve, you need to put all components of Y together and find its connection with r. (2) Use the same equations, now try to derive the LM curve. Tip: recall LM curve represent the relation between national output (Y) and real interest rate (r) in money market. So to derive LM curve, you need to consider money supply and demand.…
With following values, c = 0,7, t = 0,41 and m = 0,86 use the multiplier and calculate the potential impact of the President’s R791 billion infrastructure investment plan on the value of GDP in 2021.
Assume that a nation has an output level of 250 units per year and that consumption is also 250. Suppose there is a sudden temporary drop in GDP by 18%. What does the long-run consumption path look like if this country has access to global financial markets with an interest rate of 7%?

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