issume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the cons und investment functions are, respectivley, C = 100 + 0.8(Y – Ť), I=100 – 2000r, hat is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is "he government is currently implementing a policy - 80, und the central bank (CB) is supplying M == 1000. xpected inflation is = 0. Ť = 50, Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption changes to - 40 + 0.8(Y – Ť). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Nothing else changes. Then a) In the Keynesian cross diagram, planned expenditures, PE, b) The IS curve c) The LM curve

issume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the cons und investment functions are, respectivley, C = 100 + 0.8(Y – Ť), I=100 – 2000r, hat is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is "he government is currently implementing a policy - 80, und the central bank (CB) is supplying M == 1000. xpected inflation is = 0. Ť = 50, Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption changes to - 40 + 0.8(Y – Ť). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Nothing else changes. Then a) In the Keynesian cross diagram, planned expenditures, PE, b) The IS curve c) The LM curve

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 5DQ

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Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C = 100 + 0.8(Y – T), I = 100 – 2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M Y 200 The government is currently implementing a policy = 80, Ť = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption function changes to C = 40 + 0.8(Y – Ť). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Now suppose the government does nothing, and the CB wants to stabilise the economy with a constant r-target policy. a) The CB must react by • money supply, to b) Due to the CB's monetary policy, the LM curve c) Output, Y, changes to d) Consumtpion, C, changes to e) Private investment, I,…
. Find the level of income Y and the rate of interest i that simultaneously bring equilibrium to the economy and estimate the level of consumption C, investment I, the speculative demand for money Mw, and the 34% · Locatio transaction-precautionary demand for money Mt when (a) the money supply Ms = 1000, C = 950 + 0.75Y, I = 310 - 125i, Mw = 264 - 175i, and Mt, = 0.15Y, and (b) Mg = 800, C = 1200 + 0.6Y, I = 227 – 180i, Mw = 127 – 180i, and Mt = 0.2Y. nswers to Sunnlementary,
1. IS-LM-AD Suppose the economy of Canada is governed by the following consumption function, investment function, and fixed values of government expenditure and taxes C =300 +0.6(Y-T), I =700- 80r, G =500, T =500. Further, suppose that the money demand function, money supply, and price level are given by =Y- 200r, М - 3000, P 2. (a) Compute the IS and LM curves, and plot these curves for interest rates ranging from 0% to 15%. Find the equilibrium levels of Y and r. (b) Suppose that the government increases expenditures to G = 700. What are the new equilibrium values of Y and r. What is the government expenditure multiplier? 500), compute the aggregate (c) For the initial levels of government expenditure (G demand curve. What is the level of aggregate demand when the price level is equal to 4? (d) Now consider the case where G increases to 700. What is the new level of aggregate demand when holding the price level equals 4? 1 (e) Suppose that investment is now more sensitive to…
The following equations describe a certain economy C=200+0.75Yd consumption function I = 100-50r Investment function T = 60+0.2Y Tax function G = 200 Government expenditure X = 100 Exports M = 100 + 0.02Y Import function MS = 2000 Money supply MD = 0.3Y-10r Money demand Required: Derive the IS and LM equations. Caleulate the equilibrium Y, C, T, M and I. General equilibrium occurs when IS and LM curves intersect. Explain the conditions to be satisfied at this intersection, and explain the causes of d'sequilibrium.
Please solve the all parts..
The following equations relate to a certain economy, peruse them and answer thefollowing questions.T = 0.75Y (tax rate)L= Y - 100r (Real money demand)M = 300 (Read money supply)C = 200 + 0.25Y d (Consumption function)I = 20 - 10r (Investment function)G = 30 (government purchases) i) Derive equations fro IS and LM curvesii) Determine the rand y pair at which the two markets are clearing iii) Compute the values of C, I and L.
If consumption is C=100+0.75Yd Taxes is T=50+0.5Y Export is X=200 Import is M=50+0.25Y Government spending is G=150 Investment is I=200 Usethemultiplierapplicabletoexport,toexplainhowa100–billiondeclineindemand forexportcouldaffecttheeconomy’s: (i) Balanceofpayment
Please pleaseee do this Question : For this question assume that the real money demand function is L(R, Y) = kY - hR where k > 0 represents the sensitivity of the money demand to income and h > 0 represents the sensitivity of the money demand to the interest rate. Suppose that these sensitivity parameters are not known for the economy of Macroland and there are two possibilities: it is either i) high k and low h, or ii) low k and high h. To understand which one of these two scenarios is correct you analyze a given policy change: an increase in the overall level of taxes. Using the AA-DD model, compare and contrast the short run effects of this policy change in Macroland under these two scenarios. Explain your results intuitively.
Assume certain coutory economy consumption function =200+0.75(Y-T) given government purchase and Tax are 100 and investment function =100-25r real money demand =25y-100r money supply =1000 then find equilibrium income and interest rate when government purpose increase by 80 percent and tax increase by 70 percent draw IS and LM curve and by how much they shift ?
c) Is there either a recessionary output gap (negative GDP gap) or an inflationary output gap (positive GDP gap) at the equilibrium interest rate, and, if either, what is the amount? Given money demand, by how much would the Moola central bank need to change the money supply to close the output gap? What is the expenditure multiplier in Moola?
G,H,i,J
The government wishes to close the negative GDP gap by reducing real GDP by $900 billion. The MPC = 0.80. The government subscribes to Keynesian economics and want to implement an expansionary fiscal policy to increase aggregate demand. (1) Would an increase in government spending by $160 billion be sufficient to accomplish its goal? How much is required to close the negative GDP gар? (2) Suppose Bank A, which faces a required reserve ratio of 16%, receives a $135,000 deposit from a customer. Using the Simple Money Multiplier (SMM), calculate the theoretical change in money supply. Assume banks hold no excess reserves.