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-TW)+1(Y)+GY3. 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.

FoA decline in housing prices brought on by the EFFR within the range of IORB and ONRRP may have a…

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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Sometimes understanding of ISLM becomes clearer when one works through the algebra. This question is designed to promote such understanding. Consider Country A, a closed economy characterized by the following relationships: C = 200 + 0.5YD I = 70- 5r G = T = 100 MD = 500 + Y – 15i where YD, disposable income, is equal to income less taxes, Y-T, and r and i are the real and nominal interest rates expressed in percent. Country A is ruled by a fierce dictator who abhors price movements, so assume prices are not allowed to change in this economy, i.e., that i = r. a) Assume that the Central Bank of Country A sets the nominal interest rate at 4% (r=4) and keeps it at that level. Find consumption, investment and output in equilibrium. b) What money supply is consistent with a real interest rate of 4 percent? Given this money supply, show that saving equals investment. c) Assume Y=600 and plot money demand as a function of the nominal interest rate (put MD on the x-axis and i on the…
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.
Please answer ASAP and as accurate as possible.
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…
Refer to the figure below: CHANGE FROM PRIOR QUARTER (percent) +16 +12 +8 +4 Consumption ° -4 -8 יוון וון -12 -16 Investment -20 -24 Investment is more volatile than consumption. 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2000 2001 2002 2003 2004 2005 CALENDAR QUARTER 2006 2007 2008 What was the range, in absolute value of percentage change, of the variation in quarterly growth rates between 2005 and 2008 of Instructions: Enter your responses as a percent rounded to the nearest whole number. (a) Consumer spending? 1 percent to 4 percent 3 percent to 7 percent 5 percent to 9 percent (b) Investment spending? 1 percent to 22 percent 3 percent to 30 percent 5 percent to 37 percent
A closed economy (NX = 0) without government (G = T = 0) has a production function 1 3 Y = K L. Capital depreciates at a rate of 3 percent per year. Workers spend 76 percent of their income each year. Investment adds up to the capital stock which is available for production next year. Assume that capital per worker is 5.0625 at the beginning of 2017 and the number of workers stay the same each year. Find the steady-state capital per worker, output per worker, consumption per worker, investment per worker, and depreciation per worker.
What does the intersection of the AD and AS curves signify? Contrast the shor-turn aggregate supply (SRAS) curve from the long-run aggregate supply (LRAS) curve. (11.2)
With the help of an IS-LM diagram, explain the effects of an increase in government spending on on current output, the current interest rate, current aggregate spending. (It’d be better to explain it with diagram, thank you!)
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?

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