Dual Mandate: Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Y a-b(R₁-F) MP: Re-F= m(*₁ — ñ) + dŸ₂ AS =-1+0+0 (a) Why does the above model represent a dual mandate? (b) Solve for the AD curve of this economy. (c) Compare the slope of the AD curve in this economy to the slope of an AD curve in an economy with a single mandate (i.e. set d=0.). Does the slope make sense given the central bank's objectives? Explain using a graph.

Dual Mandate: Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Y a-b(R₁-F) MP: Re-F= m(*₁ — ñ) + dŸ₂ AS =-1+0+0 (a) Why does the above model represent a dual mandate? (b) Solve for the AD curve of this economy. (c) Compare the slope of the AD curve in this economy to the slope of an AD curve in an economy with a single mandate (i.e. set d=0.). Does the slope make sense given the central bank's objectives? Explain using a graph.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macroeconomics And The Self Regulating Economy

Section: Chapter Questions

Problem 3WNG

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Dual Mandate: Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Ý = ā – b(Rµ – r) MP: R - 7 = m(nt – ñ) + d¥t AS : T = T-1+ūŸ +õ (a) Why does the above model represent a dual mandate? (b) Solve for the AD curve of this economy. (c) Compare the slope of the AD curve in this economy to the slope of an AD curve in an economy with a single mandate (i.e. set d = 0.). Does the slope make sense given the central bank's objectives? Explain using a graph.
Question 2Explain fully how the AS/AD model is an update of the Keynesian model. Provide a graph of the equilibrium income in the Keynesian model, and compare it with a graph of the equilibrium income in the AS/AD model. Why are negative supply shocks much more harmful to an economy compared with negative demand shocks? Compare the policies which can be used to address negative demand shocks with policies to address negative supply shocks.
During the current economic crisis caused by COVID 19, the Australian authorities have used both monetary and fiscal policy to try and minimise unemployment. (a) Use the dynamic AD-AS model to describe the impact of the crisis on the economy. Be sure to comment on its effect on both the demand and supply side in your answer. b) Using the same model, discuss and show in a diagram how the correct fiscal policy may offset the impact of the COVID effects on the economy. Be sure to mention any practical issues that may modify your answer
I. Suppose the Fed creates a new electronic dollar. This new system allows everyone to make and receive instant payments with minimal fees. What impact would this have in the IS-LM model? In particular, explain how it would affect consumption and investment. II. Consider an economy described by the IS-LM model. MPC = 0.6, C* = 10 AE = Y G = 75,T = 60 I(r) = 500 – 1200r M = 250, P = 5 k(r)Y = 0.1Y – 10r a) Write the planned expenditure function and solve for equilibrium output as a function of the interest rate (the IS curve). b) Using the money demand function, solve for equilibrium output given the interest rate in the money market (the LM curve). c) Using the IS and LM curves, derive equilibrium output and the interest rate.
Q1. The following question is about the basic AS-AD Model: (a) Concisely explain why the AS curve is upward-sloping. (b) Concisely explain why the AD curve is downward-sloping. (c) Suppose the economy under consideration is in an equilibrium where Y = Yn and P = p². However, the central bank decides to use expansionary monetary policy. (d) Using the AS-AD model, explain briefly the short-run and the medium-run consequences of this policy on output and the price level. 8 Q2. Suppose the economy under consideration is in an equilibrium where and Y =Y" and P=Pe. However, the central bank decides to use expansionary monetary policy. Using the AS-AD and the IS-LM model respectively, explain in detail the short-run and the medium-run consequences of this policy on output, the price level, the interest rate and the unemployment rate.
Consider the extended IS-LM model analyzed a) Graphically analyze the effect of an increase in the risk premium on demand in the goods market, the IS curve and equilibrium production. Explain briefly. b) If there is no change in fiscal and monetary policy, what will the effects be on consumption and investment? Explain briefly. c) How should fiscal policy react to offset the effect of the rising risk premium on the equilibrium level of production? Suppose there is no change in monetary policy. Represent graphically using IS curves and LM and briefly explain
Assume the following information for a closed economy operating within the Keynesian IS-LM framework: C = $200 + 0.6Yd C = consumption Yd=disposable income I = investment I= $270 - 9r r = interest rate G= $400 G = government expenditure %3D T= 0.4Y T= taxes an fo be cl Y = aggregate income M" = money demand Md = $90 + 0.3Y- 5r I MS= $450 M = money supply Problems & Questions: Derive and state the equations for the IS and LM curves, and present these curves graphically. Show the steps of your work and identify clearly the respective intercept as well as slope of both curves. a. b. Find values of aggregate income (Y) and interest rate (r) that equilibrate the goods market and money market simultaneously, and show these equilibrium values on a well-labeled graph (diagram). Show clearly how you have found your answers. c. If the autonomous component of investment increases by $50, how would your answer to part (a) change? Explain and show graphically.
Using the IS-LM model and assuming the central bank conducts monetary policy by manipulating the cash rate, explain the effects of:: Fiscal policy designed to offset the impact of a decrease in the marginal propensity to consume (assuming an unchanged monetary policy);
In this section, the context is a large negative shock to autonomous consumption in an open economy. You may assume the economy is initially at a medium run equilibrium. Provide two different scenarios in which the macroeconomic policy response to the shock in an op economy includes the use of expansionary fiscal policy, Explain your reasoning, the policy chosen and describe how the economy adjusts to medium-run equilibrium. Refer to real world examples.
Please help me these 3 questions
Assume a Keynesian model of a small open economy. The world interest rate is given rw = 0.05. Money demand is given by the equation: Md = 20+0.5Y –40rw. Money supply is 800. The marginal propensity of consumption is 0.8. (a) Find the equation for the LM curve. (b) Find Y . (c) Assume the economy has flexible exchange rates and prices. Suppose the government were to cut spending by 5. i. How much and in what direction does the IS shift? Be precise. ii. What is the new value of Y ? 1/3 Due on Monday, 11/16 @ 9:00 a.m. iii. Has the exchange rate appreciated, depreciated, or stayed the same? (d) Assume the economy has fixed exchange rates and prices. Suppose the government were to cut spending by 5. i. How much and in what direction does the IS shift? Be precise. ii. What is the new value of Y ? iii. What is the new value of the Money supply?
Please note that this is a multi part quesition; thank you so much for your time and effort it means so much to me! Figure 1: Hayek’s (Classical) AD-AS Model (Image normally goes here) Part 1: Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Part2: Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Part 3: Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?