Monetary policy involves a change in interest rate or money supply. If the interest rate rises, planned investment falls-higher borrowing costs make lewer investment projects pro and equilibrium output level falls. Because the level of planned aggregate expenditure (which includes planned investment) depends on the interest rate, equilibrium in the goods market depends on circumstances in the money market. For each of the following situations, use an AD/AS model to describe what happens to various economic indicators in the United States in the short run. In each case assume the economy starts in long and short run equilibrium, and show the appropriate shifts in the AS or AD curves. Suppose that the AD and AS curves are given as AD P-6-0.2 (GDP) AS P1+0.15 Y(GDP) It is assumed that an 1 unit increase in Ms shifts the AD curve to the right by 0.3 units The effect of a given economic change of Ms on a number of variables is denoted as AA-b140 where Aare vector of variables including r, 1, Y, C, and Md Suppose that the impact levels of the change in Ms are 0.05,2,09,0.8, and 09 oor, 1 YC, and Md, respectively Using Excel create a spreadsheet with the column headings Y. AD, AS. r. I. Y. C, and Md. Let's start with no change in Ms. Fill in the spreadsheet's cells for Y 19.0 to Y- 21.0 in increments of 0.1. (Note. Your answers should be rounded to the nearest hundredth. Example: 12.034-12.03 5.175-5.18) What is the equilibrium GDP? 20 2 Now, there an increase in Ms by 505 (trillion). What is the impact on r due to the increase in Ms? What is the impact on I due to the increase in Ms? What is the impact on Y due to the increase in Mi What is the impact on C due to the increase in Ms? What is the inead on Md ilun to the increase in Mi Decrease, decrease, or no change) by 5, Increase, decmase, or no change) by 5 (increase, decrease, or no change) by S increase, decreese, or no change) by S (increase, decrease, or no change) in by
Monetary policy involves a change in interest rate or money supply. If the interest rate rises, planned investment falls-higher borrowing costs make lewer investment projects pro and equilibrium output level falls. Because the level of planned aggregate expenditure (which includes planned investment) depends on the interest rate, equilibrium in the goods market depends on circumstances in the money market. For each of the following situations, use an AD/AS model to describe what happens to various economic indicators in the United States in the short run. In each case assume the economy starts in long and short run equilibrium, and show the appropriate shifts in the AS or AD curves. Suppose that the AD and AS curves are given as AD P-6-0.2 (GDP) AS P1+0.15 Y(GDP) It is assumed that an 1 unit increase in Ms shifts the AD curve to the right by 0.3 units The effect of a given economic change of Ms on a number of variables is denoted as AA-b140 where Aare vector of variables including r, 1, Y, C, and Md Suppose that the impact levels of the change in Ms are 0.05,2,09,0.8, and 09 oor, 1 YC, and Md, respectively Using Excel create a spreadsheet with the column headings Y. AD, AS. r. I. Y. C, and Md. Let's start with no change in Ms. Fill in the spreadsheet's cells for Y 19.0 to Y- 21.0 in increments of 0.1. (Note. Your answers should be rounded to the nearest hundredth. Example: 12.034-12.03 5.175-5.18) What is the equilibrium GDP? 20 2 Now, there an increase in Ms by 505 (trillion). What is the impact on r due to the increase in Ms? What is the impact on I due to the increase in Ms? What is the impact on Y due to the increase in Mi What is the impact on C due to the increase in Ms? What is the inead on Md ilun to the increase in Mi Decrease, decrease, or no change) by 5, Increase, decmase, or no change) by 5 (increase, decrease, or no change) by S increase, decreese, or no change) by S (increase, decrease, or no change) in by
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Monetary policy involves a change in interest rate or money supply. If the interest rate rises, planned investment falls-higher borrowing costs make fewer investment projects profitable
and equilibrium output level falls. Because the level of planned aggregate expenditure (which includes planned investment) depends on the interest rate, equilibrium in the goods
market depends on circumstances in the money market.
For each of the following situations, use an AD/AS model to describe what happens to various economic indicators in the United States in the short run. In each case assume the economy starts in long and
short-run equilibrium, and show the appropriate shifts in the AS or AD curves. Suppose that the AD and AS curves are given as:
AD:
P6-0.2 Y(GDP)
AS:
P10.15 Y(GDP)
It is assumed that an 1 unit increase in Ms shifts the AD curve to the right by 0.3 units
The effect of a given economic change of Ms on a number of variables denoted as
AA-b1 40
where A are vector of variables including r, 1. Y, C, and Md. Suppose that the impact levels of the change in Ms are 0.05,2,09,08, and 09 our IYC, and Md respectively
Using Excel create a spreadsheet with the column headings Y AD, AS, r. I.Y.C, and Md. Let's start with no change in Ms. Fill in the spreadsheet's cells for Y=19.0 to Y-21.0 in increments of 0.1.
(Note: Your answers should be rounded to the nearest hundredth Example: 12.034
What is the equilibriuen GDP?
12.03 5.17 55.18)
20
What is the equilibrium P
2
Now there's an increase in Ms by 50.5 (trillion). What is the impact on r due to the increase in Ms?
What is the impact on I due to the increase in Ms?
What is the impact on Y due to the increase in Mi
What is the impact on C due to the incase in Mo
What is the impact on Md due to the incin M
Increase, decrease, or no change) by S
Increase, decrease, or no change) by S
(increase, decrease, or no change) by S
Decrease, decrease or no change) by S
(increase, decrease, or no change) in by
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