Price Li B8% 102 100 $1.4 B AD2 AD1 1.5 1.6 Real GDP (trillions of 2007 dollars) Refer to Figure 11.13. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Bank of Canada pursues no policy, then at point B incomes and profits are rising. the unemployment rate is very, very low. firms are operating above their normal capacity. the economy is below full employment. there is pressure on wages and prices to rise.
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- A standard "money demand" function used by macroeconomists has the form In(m) = o +/In(GDP) +₂R Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent per year. Supposed that ₁ = 3.83 and ₂ = -0.05. What is the expected change in mif GDP increases by 10%? The value of m is expected to by approximately% (Round your response to the nearest integer) What is the expected change in m if the interest rate increases from 3% to 7%? The value of m is expected to (Round your respon by approximately% ger) increase decreaseSuppose Canada in 2018 has GDP per capita that is 80% of that in the U.S. Assume that GDP per capita in the U.S. grows at 2% per year forever, and in Canada it grows at 3% per year forever. In what year will Canada have the same GDP per capita as the U.S.? (Hint: ln(1.25) ≈ 0.22, ln(1.03) ≈ 0.03, and ln(1.02) ≈ 0.02)Table 2 shows the elements of national income accounts of a country. The economy is in equilibrium. Accounts Consumption (total) Investment Government Expenditures Imports Exports £bn 80 12 8 10 16 A) What is the current equilibrium value of national income? B) What are the levels of injections and withdrawls? C) Assume that the national income rises to £108 bn and the consumption of the domestically produced goods rises to £72 bn. What is the marginal propensity to consume (use 2 decimal places)? D) What is the multiplier for this economy? E) Comment on the results in part c) ad d).
- 21. Gross domestic product. The U.S. gross domestic prod- Luct, in billions of current dollars, may be modeled by the function P(x) = 367 + x(36x0.6 – 104), where x is the number of years since 1960. (Source: U.S. Bureau for Economic Analysis.) Use P'(x) to estimate how much the gross domestic product increased from 2014 to 2015.Citibank quotes NZ$1 = US$ 0.6624. Deutsche Bank quotes € 1 = US$1.1758.BNZ Bank quotes€ 1 = NZ$1.7762.a. If these quotes are simultaneously observed spot rates, can you make an arbitrage profit? Ifso, calculate what profit would you make if you started with NZ$ 1 million. Assume thatthere are no transaction costs. b. What would be your arbitrage profit if you were to incur total transaction costs of 0.1% of theamount used for conversions?II. PROBLEMS Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000 Money Demand: M= 10,000 – 40,000r where money is in billions of dollars and interest rates, r, is written as a decimal (e.g., an interest rate of 10% would be written as .1 in the equation). A. Determine the equilibrium interest rate and quantity of money. B. What will happen in the money market if the interest rate is currently 10%? What is the amount of excess supply of or excess demand for money? C. Show in graph that at this interest rate (10%) there is disequilibrium in the money market. 2. Assume that a particular bank has excess reserves of Php800,000 and checkable deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank's actual reserves? 3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider the following transactions: Owners of the bank sold shares of stocks to the public (which includes owners' equity) amounting to…
- QUESTION 8 Consider the following Taylor rule i=0.02+0.75y+0.25(n– 2% ) Notice that the central bank puts a higher policy weight on output than inflation. Imagine that inflation is 2%. How large should be the decline in output relative to the full-employment level for the central bank to hit the zero lower bound? O A. 0.00% O B. 1.27% O C. 2.67% O D.4.00%es Consider the following information: State of Economy Recession Boom Probability of State of Economy .36 .64 Expected return Rate of Return if State Occurs Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. % -.10 .22Given W=180 b=0.75 G=90 Tax=90 NX=-50 I=300-10r Central bank reserves are Gold=100 f. currencies 200 l.currencies 150 t-bills 500 RRR=0.2 MD=5000-50r Calculate the equilibrium GDP (y). If Ypot=1700 by how much should the central bank change the RRR to attain potential If instead the central bank will involves open market operations in order to attain potential. By how much should it increase or decrease t-bills.
- Consider the following information: State of Economy Recession Normal Boom Probability of State Rate of Return if State Occurs of Economy Expected return .10 .60 .30 Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percentrounded to 2 decimalplaces,e.g., 32.16. -.17 .08 .27 %Problem 2: Monetary Theory [13 Points] Suppose that an economy begins in long-run equilibrium. Suppose also that there is an increase in Aggregate Demand (AD) as a result of an increase in Net Exports (NX). 9. Does the economy enter an inflationary gap or a recessionary gap? Explain your answer using an AD-AS figure. [2 points] 10. What happen to Money Demand as a result of this shift in the AD-AS model. Does this create a surplus or shortage in the Money Market? Does this create a surplus or a shortage in the bond market? Explain your answer using a MD-MS figure. [3 points] 11. If the Central Bank wants to prevent further inflation, what action could it take? What does it need to do with the Money Supply (MS) to maintain equilibrium in the money market? Explain your answer using both an AD-AS figure and a MD-MS figure. [3 points] 12. If the Central Bank knew that there would be a lag between their decision and their effect on AD, how would this change your answer to Q11 (if at all)?…Consider the following information: State of Economy Recession Probability of State of Economy Boom -29 .71 Expected return Rate of Return if State Occurs Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. % -.09 2.21