Consider the national income model below 0< ac ΟΥ Y-C(Y)-I(i) - Go = 0 kY+L(i) Mso = = 0 ai ƏL < 1; < 0; < 0; k= positive constant di ді • Is the first equation in the nature of an equilibrium condition? • What is the total quantity demanded for money in the model? • Analyze the comparative statics of the model when money supply changes (monetary policy) and when government expenditure changes (fiscal policy). Make sure to indicate the signs and provide economic insights.

Consider the national income model below 0< ac ΟΥ Y-C(Y)-I(i) - Go = 0 kY+L(i) Mso = = 0 ai ƏL < 1; < 0; < 0; k= positive constant di ді • Is the first equation in the nature of an equilibrium condition? • What is the total quantity demanded for money in the model? • Analyze the comparative statics of the model when money supply changes (monetary policy) and when government expenditure changes (fiscal policy). Make sure to indicate the signs and provide economic insights.

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

In the 1970s a common practice was to estimate a distributed lag modelrelating changes in nominal gross domestic product (Y) to current andpast changes in the money supply (X). Under what assumptions will thisregression estimate the causal effects of money on nominal GDP? Arethese assumptions likely to be satisfied in a modern economy like that ofthe United States?
Question The Bank of Canada introduces an unexpected increase in the money supply. Answer the following: (a) Use the IS-LM model to determine how the policy ffects national income, Y, and real interest rates, r, in the short run. (b) Based on your answer from part (a), how do consumption, C, and investmentL change? Explain. (c) Now use the AD-AS model to illustrate how the policy affects national income in the short run. (d) How does the magnitude of the change in national income in part (c) compare with the magnitude of the change in part (a)? If they differ, what accounts for the difference? Explain. (e) Use the AD-AS model to briefly explain how the economy adjusts to a new long- run equilibrium. wer here. Please write out your answer and scan and upload it at the end of th
1- Consider the following IS-LM model: I= 150 + 25Y - 1000i, (M/P 2Y 8000i, G=250, T= 200 C=200 + 25YD. NX 0, M/P = 1600. a) Derive the IS relation b) Derive the LM relation. c) Solve for equilibrium real output (Y*). d) Solve for the equilibrium interest rate (i*) e) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. ) Now suppose that the money supply increases to M/P =1,840. Solve for Y, i c, and T, and describe in words the effects of an expansionary monetary policy. g) Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, 1. C. h) The expansionary fiscal policy in part (g) have resulted in large budget deficit (T= G = 200 – 400 = -200). Suggest a policy mix to decrease fiscal deficit to achieve a balanced budget (T = G = 0). b(Ctrl) - 立
The economy is hit by the Covid-19 pandemic and affects the short-run aggregate supply. Critically discuss the short-run and long-run effects on output and the price level using the AD-AS diagram: (a) The central bank responded by printing more money.
Consider the market for loanable funds. Suppose the demand for loans is given be i=9-Q+π, and the supply of loans is given by i=Q/2+π, where π represents inflation. Now suppose that π=5 (instead of 3, in the previous problem). What is the equilbrium quantity of loans and what is the corresponsing interest rate? Q*=8, i*=6 Q*=3, i*=6 Q*=6, i*=8 Q*=6, i*=6
Use the following data table to answer the questions below, dollar arnounts are in billions. Consumption Money Market Government G- 6,000 ↑ = 5,000 -10 or 10 C = 900 + 80(Y-T) Investment Full Employment -8,000 -7,500 y- 51,500 Using the data from above, solve for the economy's current equilibrium (y"). If necessary, round your final calculation to two decimal places.
Scenario FRQ In 2019 the federal government decreased interest rates for banks three times. Shortly after, POTUS tweeted the following Would be sooo great if the FED would further lower interest rates and quantitative ease. The Dollar is very strong against other currencies and there is almost no inflation. This is the time to do it. Exports would zoom! December 17, 2019 A. Define the type of economic policy inferred by the scenario and describe how it impacts the economy. B. Describe why POTUS has no power to control the implied power inferred to by the scenario above. C. Describe how a change in political party leadership could effect the outlined scenario above.
Question 3 (Equilibrium) Since the Covid-19 crisis is nearing an end, the government is planning to phase out government spending programs. In other words government spending is expected to decrease. Explain how this would affect the equilibrium using the two period macroeconomic model that you have learnt (Draw the graph for the change in equilibrium and explain how the variables change). Show the changes in both the labor market and the goods market using the 2 step approach (direct and indirect effects) Discuss the changes in 1. Output Y 2. Output demand Yp 3. Output supply Ys 4. Labor N 5. Labor demand Np 6. Labor supply Ns 7. Interest rater 8. Wage w Feel free to make assumptions (about whether substitution effect is stronger than income effect, whether change in output demand is greater than change in output supply and so on.
Consider the following model of an economy operating with fixed wages, prices and interest rates and hasexcess capacity. Adsume all figures are I Zambian kwacha. C=100+0.8yd, T=100+25Y, G=980 and I= 500 Where c is consumption, yd is disposable income, T is taxes net of transformers, G is government spending on goods and services and I is investments. A. Calculate the equilibrium level of national income B. Illustrate your equilibrium in the keyneasian cross diagran C. What is the value of the multiplier D. Is governnent running a surplus or a deficit E. Show the impact of a reduction in government spending by 80 on the equilibrium level of national income F. Illustrate your new equilibrium in the same Keynesian cross diagram as in b.
If nominal GDP is $1,200 billion and, on average, each dollar is spent three times in the economy over a year, then the quantity of money demanded for transactions purposes will be Multiple Choice 3,600 1,200 800 400 600
Consider the following economy. Individuals are endowed with y units of the consumption good when young and nothing when old, but would like to consume in both periods. People face a lump-sum tax of t goods when young and a rate of expansion of the fiat money supply of z > 1. The tax and the expansion of the fiat money stock are used to finance government purchases of g goods for each old person in every period. There are N people in every generation (constant population). (a) Find the individualís budget constraints when young and when old. Combine them to derive the individualís lifetime budget constraint. Explain the results. (b) Find the government's budget constraint. Explain each component. (c) Find the feasible set. Explain what is the role of z, t and g in it, and why. (d) Now consider instead the case where the lump-sum tax of t goods is levied on the old and used to finance a transfer of g goods to the young. Derive the new government budget constraint and feasible set.…
Use AD and AS curves to explain the effects on the equilibrium price level and equilibrium level of output in the short run.(a) An expansionary fiscal policy with the economy operating near full capacity. (b) A contractionary monetary policy during a period of high unemployment and excess industrial capacity. (c) A strong hurricane destroys energy plants which cause energy prices to increase, assuming that the Fed attempts to keep interest rates constant by accommodating inflation. (d) The federal government pursues a contractionary fiscal policy while the Fed acts to keep output from falling.