d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (1)? Answer: C = [ Select ] and I = [Select] To verify your answer, you can calculate C + |+ G to see if you can get the value of output Y. e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What level of money supply (Ms) should the Fed target to achieve the interest rate at 3%? Answer: Y = [ Select] ;I = [ Select] and C = [ Select ] The reduction in the interest rate (Select ] output. As a result, consumption [ Select ] and investment [ Select ] f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this expansionary fiscal policy on Y, I, and C. Answer: At the initial interest rate of 5%, Y equals [ Select ] v when G is increased to 400. A fiscal expansion increases output. Consumption increases because output increases. When the Fed keeps interest rates at 5% then investment increases as output increases, The new level of investment (I) is [ Select ] . The new level of consumption (C) is [Select ]
d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (1)? Answer: C = [ Select ] and I = [Select] To verify your answer, you can calculate C + |+ G to see if you can get the value of output Y. e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What level of money supply (Ms) should the Fed target to achieve the interest rate at 3%? Answer: Y = [ Select] ;I = [ Select] and C = [ Select ] The reduction in the interest rate (Select ] output. As a result, consumption [ Select ] and investment [ Select ] f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this expansionary fiscal policy on Y, I, and C. Answer: At the initial interest rate of 5%, Y equals [ Select ] v when G is increased to 400. A fiscal expansion increases output. Consumption increases because output increases. When the Fed keeps interest rates at 5% then investment increases as output increases, The new level of investment (I) is [ Select ] . The new level of consumption (C) is [Select ]
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
I answered part a-c. I ONLY need help with part d-f. Please only answer questions d-f
Transcribed Image Text:Consider the economy of Eagle Republic with the following numerical example of the IS-LM model:
C = 200 + 0.25 (Y - T)
| = 150 + 0.25 Y - 1000 i
G = 250
T= 200
a. Derive the equation for the IS curve. Answer: Y =
1100
2000
b. The Fed sets interest rate i = 5%. What is the output (Y) in this economy. Answer: Y =
1000
c. Suppose that the demand for money (Md) is given by the following equation:
Md = 2 Y - 8000 i
What is the level of real money supply (Ms) when the interest rate is 5%? Hint: At the equilibrium in the financial market, Ms = Md. Then, use Y and i in part (b)
to solve for Ms.
Answer: Ms =
1600
![d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (1)?
Answer: C = [ Select]
v and I =
[ Select ]
To verify your answer, you can calculate C + |+G to see if you can get the value of output Y.
e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What
level of money supply (Ms) should the Fed target to achieve the interest rate at 3%?
Answer: Y = [ Select]
:| =
[ Select]
v and C = [ Select ]
The reduction in the interest rate
[ Select ]
v output. As a result, consumption (Select]
and investment
[ Select ]
f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this
expansionary fiscal policy on Y, I, and C.
Answer:
At the initial interest rate of 5%, Y equals [ Select ]
when G is increased to 400. A fiscal expansion increases output. Consumption
increases because output increases. When the Fed keeps interest rates at 5% then investment increases as output increases, The new level of investment (I) is
[ Select ]
. The new level of consumption (C) is [ Select]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa61d3153-2818-4412-8cd6-ecbf1177ab6e%2F2296f1b3-5dce-4663-bbf9-442f8f753478%2Ff1zw72v_processed.png&w=3840&q=75)
Transcribed Image Text:d. Given the equilibrium in both goods and financial markets, what are the values for consumption (C) and investment (1)?
Answer: C = [ Select]
v and I =
[ Select ]
To verify your answer, you can calculate C + |+G to see if you can get the value of output Y.
e. Now suppose that the Fed cuts the interest rate to 3%. How does this affect Y, I and C? Describe in words the effects of this expansionary monetary policy. What
level of money supply (Ms) should the Fed target to achieve the interest rate at 3%?
Answer: Y = [ Select]
:| =
[ Select]
v and C = [ Select ]
The reduction in the interest rate
[ Select ]
v output. As a result, consumption (Select]
and investment
[ Select ]
f. Return to the initial situation in which the interest rate set at 5%. Now suppose that government of spending increases to G = 400. Summarize the effects of this
expansionary fiscal policy on Y, I, and C.
Answer:
At the initial interest rate of 5%, Y equals [ Select ]
when G is increased to 400. A fiscal expansion increases output. Consumption
increases because output increases. When the Fed keeps interest rates at 5% then investment increases as output increases, The new level of investment (I) is
[ Select ]
. The new level of consumption (C) is [ Select]
Expert Solution
Step 1
As Given:
Equilibrium value of C and I can be calculated by putting the value of Y at equilibrium.
Step by step
Solved in 4 steps with 1 images
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