QUESTION 5 "Suppose the parameters of the IS curve are a-0,b-3/4, and r= 2%. Suppose further that initially the real interest rate R-2%. Draw the diagram for the IS curve and recall "a"" is a collection of terms (aC, aG, and so on). Suppose the real interest rate rises by 2 percentage points, from 2% to 4%. What will happen to SRO?" Decrease by 1 percentage point Increase by 1 percentage point Decrease by 2 percentage points Increase by 2 percentage points Decrease by 1.5 percentage points Increase by 1.5 percentage points QUESTION 6 "Suppose the parameters of the IS curve are a 0,b=3/4, and r = 2%. Suppose further that initially the real interest rate R-2%. Draw the diagram for the IS curve and recall "a" is a collection of terms (aC, aG, and so on). Suppose the government announces a temporary elimination of the sales tax. As a result, aC increases by 1 percentage point, from 70% to 71%. Assuming the Fed keeps interest rates constant, what will happen to SRO?" Decrease by 1 percentage point Increase by 1 percentage point Decrease by 2 percentage points Increase by 2 percentage points Decrease by 1.5 percentage points Increase by 1.5 percentage points

QUESTION 5 "Suppose the parameters of the IS curve are a-0,b-3/4, and r= 2%. Suppose further that initially the real interest rate R-2%. Draw the diagram for the IS curve and recall "a"" is a collection of terms (aC, aG, and so on). Suppose the real interest rate rises by 2 percentage points, from 2% to 4%. What will happen to SRO?" Decrease by 1 percentage point Increase by 1 percentage point Decrease by 2 percentage points Increase by 2 percentage points Decrease by 1.5 percentage points Increase by 1.5 percentage points QUESTION 6 "Suppose the parameters of the IS curve are a 0,b=3/4, and r = 2%. Suppose further that initially the real interest rate R-2%. Draw the diagram for the IS curve and recall "a" is a collection of terms (aC, aG, and so on). Suppose the government announces a temporary elimination of the sales tax. As a result, aC increases by 1 percentage point, from 70% to 71%. Assuming the Fed keeps interest rates constant, what will happen to SRO?" Decrease by 1 percentage point Increase by 1 percentage point Decrease by 2 percentage points Increase by 2 percentage points Decrease by 1.5 percentage points Increase by 1.5 percentage points

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

How might a sudden increase in people’s expectationsof future real estate prices affect interest rates?
1. [Matrix Inversion in IS-LM Model] Given the IS equation 0.4Y +150r – 847.75 = 0, and the LM equation 0.1Y – 250r – 158.75 = 0, find the equilibrium level of national income Y and the interest rate r by using the technique of matrix inversion.
A. Given: C = 700 + .80 (1- t)Y, t=0.25 I = 210 -75i; G= 1000; TR=100 L= 0.20Y- 40i ; M/P = 800 B. Compute:1. The equilibrium income and the equilibrium interest rate2. Show the graph of the IS -LM equilibrium3. If G is increased to 1,500, what will be the new level of equilibrium income and interest rate? What happens to the IS curve?4. If tax rates is increased to 0.35, what will be the new level of equilibrium income and interest rate? What happens to the IS Curve?5. If M/P is increased to 900, what will be the new level of equilibrium income and interest rate? What happens to the LM curve?6. Given the simulated values of equilibrium incomes and interest rates, whatexplanation can you offer on such changes? On its impact in our economy?
ANSWER BOTH C & D
Number 1
2. Assume a closed economy where the consumption, investment, and government expenditure are C = 350 + 0.3Y; | = 120 - 40r; G = 120 II What is the value of real interest rate which clears the good market when Y (income ) equal to $ 600. Hint (find IS equation first) * 5.5 5.6 4.25 5.9
What is the term structure of interest rates and what can it tell you about the outlook for the economy? ting For you! Edit View Insert Format Tools Table 12pt ✓ Paragraph✓ BIUAV | р 2 T² : V | i I 0 words # ✓
Real Interest Rate 1₂ 1. 4 FIGURE 25-2 1 11 12 13 -10 Quantity of Investment and Saving (5) Refer to Figure 25-2. Suppose national saving is reflected by NS, and investment demand is reflected by Now suppose the government implements a policy that encourages investment. What is the effect in th market for financial capital? Select one: a. National saving shifts to NS₁, investment demand shifts to 1₁D, and the quantity of national saving rises t b. There is no effect on NS or ID and the quantity of national saving supplied remains at I". c. National saving shifts to NS₁, and the quantity of national saving supplied rises to 12. d. Investment demand shifts to 1₁D and the quantity of national saving supplied rises to 1₁. e. Investment demand shifts to 1₁D, national saving shifts to NS₁, and the quantity of national
In this question, use the approximate formula-as given by the Fisher equation-for calculating the the real rate of interest. Assume a fixed real interest rate and everyone believes the Central Bank's forecasts. Believing that inflation will be 1% for the year, the current yield on a government bond that matures in one year is 2.9%. The Central Bank then revises its inflation forecast to 1.6% for the year. What will be the yield on government bonds maturing in one year after this revision? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the negative sign.
2. Suppose that a representative household is part of a two-period economy, with a commodity and a credit market. He holds no initial assets (bonds or money) and no final assets, by the end of the second period. Assume that, for some exogenous reason, the price level decreases at the beginning of period one, before consumption and labor effort decisions are made. This drop is expected to last forever. a) Do you expect this change to yield any real effect? More exactly, are real aggregate output demand (through consumption) or supply (through labor effort) affected? Explain why or why not. b) Imagine now that this household leaves a bequest to the next generation. As a result, a decision is made to hold a fixed real value of bonds (b2/P) by the end of the second period. These will be paid to the children of the household. Under these conditions, will there be any impact from the price level change over the individual consumption and labor effort choices of the representative household…
Question 7 The country of Kingsland is considering the introduction of a compulsory retirement saving scheme. Under this scheme all workers are required to save ten per cent of their annual wages and salaries until they retire. Use the supply and demand model (and a diagram) for saving and investment to explain the likely effects of this scheme on national saving, investment and the real interest rate in New Holland. Explain the effects on employment of the saving scheme. (You can assume that New Holland is a closed economy).
A consumer lives three periods, called the learning period, the working period, and the retirement period. Her income is 150 during the learning period, 1000 during the working period, and 400 during the retirement period. The consumer's initial assets are 100. The real interest rate is zero. The consumer desires perfectly smooth consumption over her lifetime. What are consumption and saving in each period, assuming no borrowing constraints (saving can be negative)? Give typing answer with explanation and conclusion