Question The Bank of Canada introduces an unexpected increase in the money supply. Answer the following: (a) Use the IS-LM model to determine how the policy ffects national income, Y, and real interest rates, r, in the short run. (b) Based on your answer from part (a), how do consumption, C, and investment I change? Explain. (c) Now use the AD-AS model to illustrate how the policy affects national income in the short run. ODityde of the change in national income in part () compare Dart (a)? If they differ, what accounts for the

Question The Bank of Canada introduces an unexpected increase in the money supply. Answer the following: (a) Use the IS-LM model to determine how the policy ffects national income, Y, and real interest rates, r, in the short run. (b) Based on your answer from part (a), how do consumption, C, and investment I change? Explain. (c) Now use the AD-AS model to illustrate how the policy affects national income in the short run. ODityde of the change in national income in part () compare Dart (a)? If they differ, what accounts for the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y How much investment (I) will be crowded out if the government increases its purchases by deltaG = 160 and nominal money supply (M) remains unchanged?
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Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Question 45 of ao One policy response to the economic slowdown in Canada in 2008-2009 wan to increase money grwth. This policy response can be represented in the IS-LM model by shifting the IS: right curve to the LM; right LM: left IS; left
Use the IS-LM model to analyze the short run impact of a fall in consumer confidence on the economy. You must provide a complete discussion of the impact including how the shock transmits through the economy & illustrate the impact on a diagram. The discussion must explain how consumers and producers respond in the economy; this means an intuitive discussion must be provided [see lecture for example].
DIREC TIONS: please complete the practice questions on separate paper by hand. AD/AS can show the economy at three different points: • Negative output gap (recessionary gap) • Full employment output (healthy economy, NRU 4-6%) • Positive output gap (inflationary gap) PRACTICE: 1. Draw AD/AS at full employment output: (this is when LRAS, SRAS and AD are all happy together) 2. Draw AD/AS showing a negative output gap: (this is when output is lower than it would be at full employment 3. Draw AD/AS showing a positive output gap: (this is when output is higher than it would be at full employment) 4. Define stagflation 5. Draw an AD/AS graph showing stagflation. 6. If the government steps in to address a positive or negative output gap and uses fiscal and/or monetary policy, which AD/AS curve will shift and why? 7. If the government takes no policy action to address a positive or negative output gap, which AD/AS curve will shift and why? 8. Explain how fiscal policy can be used to correct a…
VI. Here we consider the paradox of saving one last time in the context of the AS-AD model. Suppose the economy begins with output equal to its natural level. Then there is a decrease in consumer confidence, as households attempt to increase their saving, for a given level of disposable income. a. In AS-AD and IS-LM diagrams, show the effects of the decline in consumer confidence in the short run and the medium run. Explain why curves shift in your diagrams. b. What happens to output, the interest rate, and the price level in the short run? What happens to consumption, investment, and private saving in the short run? Is it possible that the decline in consumer confidence will actually lead to a fall in private saving in the short run? c. Repeat part (b) for the medium run. Is there any paradox of saving in the medium run?
Suppose that the government is concerned about keeping pace with this long-term growth and ensuring that it maintains a stable price level in its long-term equilibrium. Therefore, it does act and decides to keep increasing the autonomous demand for investment in order to try and maintain a constant price level in the face of this productivity growth. 3. Does the AD-AS model predict that this strategy could be effective? What would we expect to happen to both p* and the equilibrium interest rates in this example? Explain your answer.
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Consider a simple macro model with a constant price-level and demand-determined output. The equations of the model are: • C- 125 + 0.85YD • I= 50 G = 200 T= 0.20Y •X 125 • IM = 0.25Y Total autonomous spending in this model is: (Nearest dollar.) Your Answer:
If the level of government spending were to increase by If the level of government spending were to increase by 50 units in the IS-LM schedule model, how would this affect the position of the IS schedule? In which direction would the schedule shift and by how many units? If the level of government spending were to increase by
8a. Assume that an economy is at equilibrium at its potential GDP at $10 trillion and aprice level of 100. What would be the short-run impact of a significant fall in consumer confidence about the future? Provide an AD/AS model to support your answer. b. What policy would you recommend to the chairperson of the Federal Reserve? Be specific. Show the effect of this policy on your graph part a. c. What are the major goals of the Fed's monetary policy?