Question 6. Assume that the demand for real money balance (M/P) is M/P = 0.6Y- 100i, whereY is national income and į is the nominal interest rate. The real interest rate r is fixed at 3 percentby the investment and saving functions. Assume that the inflation rate equals the rate of nominalmoney growth. If Y is 1,000, M is 100, and the growth rate of nominal money is 2 percent, whatmust į and P be?

Answer: Given, Equation of real money balances: MP=0.0Y-100iWhere,Y=national incomei=nominal…

Answered: Question 6. Assume that the demand for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. 1. Factors that shift the IS curve involve: A) interest rates and levels of GDP. B) the quantity of money and the demand for money. C) the trade balance. D) exogenous variables affecting demand, such as a change in government spending or a change in the exchange rate. 2. The LM curve shows that, with a fixed supply of money, as GDP rises, the demand for money will ____ and the rate of interest will ____. A) rise; rise B) fall; fall C) rise; fall D) fall; rise 3. If the supply of money increases, what happens in the IS–LM framework? A) The IS curve shifts right. B) The LM curve shifts right. C) The IS curve shifts left. D) The LM curve shifts left. 4. If the demand for money increases, what happens in the IS–LM framework? A) The IS curve shifts right. B) The LM curve shifts right. C) The…
Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) 1 = 400 – 15r M = 200 + Y – 100r G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. Department of Economics a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.
please explain to me these questions with the Answer. Thank you
Consider a closed economy in which: C=250+0.8 (Y-T)I=400−30 rT=150G=220Y=C+I+G where Y is GDP, C is consumption, I is investment, T is taxes, G is government purchases, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 3,000. a. Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 3 percent, so r = 3. Solve for GDP (Y). Y=______ b. How much is the private saving (SPVT)? SPVT=______ c. How much is the government spending multiplier (k)? k=______ d. Assuming no change in monetary policy, what change in government purchases (ΔG) would restore full employment? ΔG=______ e. Assuming no change in fiscal policy, what change in the interest rate (Δr) would restore full employment? Δr=______
Only D please
DRAW a diagram for each of the following events, does the dollar rise or fall in value? MUST include a separate diagram for each: a) A recession occurs in the United States, lowering U.S. income. b) An economic boom increases income in China. c) U.S. interest rates decrease. d) Interest rates decrease in all countries e) Interest rates rise in Europe and Asia, but not in the United States. 2
From the equation of exchange, if both real income (Y) and the quantity of money (M) double and the price level (P) remains constant, then velocity (V). and nominal income doubles; remains constant decreases by 50 percent; quadruples remains constant; doubles doubles; doubles none of the above
q10
3. Consider two countries, A and C. At the beginning of the year, the CPI of Country A was 100, while that of Country B was 130. During the year, the money supply in Country A increased by 100%, while that in Country B remained unchanged. The velocities of money and the real GDP's of both countries also remained unchanged during the year. Consider Country A as the home country and Country C the foreign country. At the beginning of the year, the nominal exchange rate was 1 unit of home currency = 1.3 units of foreign currency. (a) Find the real exchange rate at the beginning of the year. (b) Based on the quantity theory of money and the purchasing-power parity, find the real exchange rate and the exchange rate at the end of the year. (c) Based on your findings in (b), comment on how a country's monetary policy may influence the nominal exchange rate of its currency.
QUESTION 5 Which of the following is true? All else equal, if government spending and tax revenue INCREASE by the SAME amount in a closed economy, where the marginal propensity to consume is less that 1, then the equilibrium real interest rate will increase. O Job polarization refers to the disappearance of low-skill jobs. None of the other answers is correct. All else equal, an increase in the currency-deposit ratio will cause an increase in the money supply.
C = 100 + 0.5 - (Y – T') I = 500 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are Ğ = 500, Ť = 100. The LM (money market equilibrium) curve is Y 5i where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 8000 units of money, and expected inflation is a = 0. Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially at the same level (Y = 2000). Suddenly, news of a new world-beating super-vaccine raises expected inflation to = 0.05. Question 5 Suppose that consumers finally decide to get rid of cash altogether, and only use debit cards. Nothing else changes, and the CB doesn't do anything either. What do you think will happen to money supply M and prices P in the short and long-runs? Does this change money demand?
Now, consider an economy in which the demand for money is of the formY / (1 + it) for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The real interest rate, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the money supply will grow at 2 percent forever, that is,M0 = 100, M1 = 100, M2 = (1.02)M1, M3 = (1.02)M2, and so on. A . Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1, M1 / P1 and, E1π2. B . Find the inflation rate, nominal interest rate, real money balance in period 2, and expected inflation in period 3, given the information available in period 2, π2, i2, M2 / P2 and E2π3. C . Compare E1π2 and π2.

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