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.

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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Why does interest rate links the two halves of the IS-LM model together?
QUESTION 12 Which of the following is not an assumption of the IS/LM model? Short-run model Interaction between money and goods market There are unemployed resources Prices are sticky Demand is passive
Consider the basic Macroeconomic model involving: Private sector consumption: C = co+c1(Y-T); Y = GDP, T = Taxes Tax function: T = to+t1Y Business sector investment: I = io+i2r, r=interest rate Government spending: G = Go Exports: X = xo+x1x; x = Exchange rate of the dollar Imports: M = mo+m1Y+m2x; x = Exchange rate (a) Identify and explain the parameters: co, t1, i2, and m2. (b) Solve this model for the equilibrium GDP (Y*).
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Assume that the economy is initially operating at the natural level of output. Graphically illustrate (using the IS-LM-PC model) how the economy adjusts to a decrease in taxes both in the short run and in the medium run.
Dual Mandate: Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Y a-b(Re-F) MP: Re-F= m(₁ - 7) + dŸ₁ tt-1+0+0 AS (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.
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If the level of government spending were to increase by If the level of government spending were to increase by 50 units in the IS-LM schedule model, how would this affect the position of the IS schedule? In which direction would the schedule shift and by how many units? If the level of government spending were to increase by
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Assume the following IS-LM model: Expenditure sector:C = 100 + (4/5)YD G = 120 I = 300 - 20i YD = Y - TA NX = -20 TA = (1/4)Y Money sector: M = 700 P = 2 Md = (1/3)Y + 200 - 10i a) Derive the IS and LM equations for the above model. b) Draw the IS and LM curves. What are the equilibrium values of output (Y) and interest rate (i)? Show these values on the graph you drew. Derive the equilibrium values of consumption (C) and money demand (Md). c) How much investment (I) will be crowded out if the government increases its purchases by DG = 160 and nominal money supply (M) remains unchanged? Show how this increase in government purchases would affect the graph in part (b) by drawing a new graph.
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