study the below diagram and answer questions 31 and 32. 1/3/2021 IS LM, LM Y. PC Yn 31. Refer to the top figure in the diagram. An upward movement along the IS curve is the result of the decision taken by the ... 1. SARB to stimulate economic activity. investors to reduce the output level. 2. 3. SARB to decrease the policy rate in reaction to high inflation. 4. SARB to increase the interest in reaction to high inflation 32. Refer to the bottom figure in the diagram. Which of the following options is/are correct about the medium-run equilibrium? a. The economy converges to the natural level of output and stable inflation. b. Over time there will be an upward movement along the IS curve from a to a1. C. A decline in output moves the economy down the PC curve from a to a1. Policy rate = rn and output = Yn. %3D d. e. There is no pressure on inflation at point a1. 1. a, b, c, d and e 2. Only a, b, c and d 3. Only b, c and d 4. Only b, c, d ande 5. Not option 1, 2, 3 or 4 Change in inflation rate Real interest rate,r

study the below diagram and answer questions 31 and 32. 1/3/2021 IS LM, LM Y. PC Yn 31. Refer to the top figure in the diagram. An upward movement along the IS curve is the result of the decision taken by the ... 1. SARB to stimulate economic activity. investors to reduce the output level. 2. 3. SARB to decrease the policy rate in reaction to high inflation. 4. SARB to increase the interest in reaction to high inflation 32. Refer to the bottom figure in the diagram. Which of the following options is/are correct about the medium-run equilibrium? a. The economy converges to the natural level of output and stable inflation. b. Over time there will be an upward movement along the IS curve from a to a1. C. A decline in output moves the economy down the PC curve from a to a1. Policy rate = rn and output = Yn. %3D d. e. There is no pressure on inflation at point a1. 1. a, b, c, d and e 2. Only a, b, c and d 3. Only b, c and d 4. Only b, c, d ande 5. Not option 1, 2, 3 or 4 Change in inflation rate Real interest rate,r

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a) The 1-year bond yield is currently at 0.5% and the 2-year bond yield is 1%. Inflation is expected to be 2% for the next year. i. What is the 1-year bond yield expected in one year time? ii. What is the current 1-year real interest rate? b) Consider that the central bank is deciding to raise interest rates. With the aid of an expectations modified IS-LM diagram, clearly show the impact on current output if (i) the interest rate rise is limited to 1 year and (ii) if the interest rate rise is expected to be in place for several years.
Suppose that national income has fallen from its natural level (Y.) to a lower level at which there is cyclical unemployment. This may have been due to a decline in exports. that has shifted the IS curve to the left. What might cause the LM curve to automatically move to the right and so move the economy back towards Y.? 1. A rise in the general level of prices in the economy. 2. A reduction in taxes. 3. A rise in government spending. 4. A fall in the general level of prices in the economy.
Question 12 1 pts Other things equal, an increase in the money supply will: shift the AS curve to the right. cause a movement along a given AD curve. shift the AD curve to the left. shift the AD curve to the right.
Supposed the economy is faced with persistently rising prices and there is a real threat of a worsening inflation. What specific actions/policy can the Central Bank implement to curb this threat and why? Based on the IS-LM model, if the Central Bank does this, which curve will shift and in what direction? Predict the effects of the Central Bank action on the following: Income: ________________ Interest Rate: ____________ Consumption: ___________ Investment: ______________
Suppose the natural real GDP is constant at $100 with 4% inflation rate. Given the following table. Output Inflation Ratio Rate 96 2% 98 3% 100 4% 102 5% 104 6% An inverse supply shock raises the inflation rate associated with every output ratio increases by 2%. Graph the SP curve and complete the following table. Inflation Rate Output Ratio Accommodating Policy Natural Policy Extinguishing Policy
I Graphical Analysis 1. Using the AE-PC Model illustrate graphically the impact of each these factors in separate and neatly labeled diagrams. You need to identify the impact on a particular curve, the direction of shift and the resulting impact on the equilibrium interest rates, inflation rates and GDP. Note: Label the axis please. (a) There is a sudden rise in oil prices (b) The US government raises spending.
1. Assume that the AD curve of the economy is given by Y = 15 – 100t + ñ, where m is a demand shock (animal spirits, government spending, or money supply). The AS curve is given by 1 TT = En + (Y – Ỹ) + ū, 50 where v is a supply shock (oil price, productivity). The variable n is the inflation rate, En is expected inflation rate, Y is output, and Y is long-run output. For numerical values, Y = 10, ñ = ū = 0. Answer each equation using both graphs and math. a. Plot the above AD-AS curves on the (Y, t) diagram. Describe the slopes of both the AD curve and the AS curve. b. If the economy is currently at its long-run trend, what should be the equilibrium output? What is the equilibrium inflation rate in this economy? What should be the equilibrium expected inflation rate in this economy? Assume that expected inflation rate is constant at 5 percent. What happens when the oil price increases by 5 percent (ū = 0.05)? What is the equilibrium level of output? C. What is the equilibrium level of…
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
Explain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve. Furthermore, Explain in words how and why the income and interest sensitivities of the demand for real balances affect the slope of the LM curve. According to the IS–LM model, what happens to the interest rate, income, consumption, and investment under the following circumstances?a. The central bank increases the money supply.b. The government increases government purchases.c. The government increases taxes.
1- Consider the following IS-LM model: I= 150 + 25Y - 1000i, (M/P 2Y 8000i, G=250, T= 200 C=200 + 25YD. NX 0, M/P = 1600. a) Derive the IS relation b) Derive the LM relation. c) Solve for equilibrium real output (Y*). d) Solve for the equilibrium interest rate (i*) e) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. ) Now suppose that the money supply increases to M/P =1,840. Solve for Y, i c, and T, and describe in words the effects of an expansionary monetary policy. g) Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, 1. C. h) The expansionary fiscal policy in part (g) have resulted in large budget deficit (T= G = 200 – 400 = -200). Suggest a policy mix to decrease fiscal deficit to achieve a balanced budget (T = G = 0). b(Ctrl) - 立

Revisited Fiscal and Monetary Policy The IS Curve represents the equilibrium in the goods market and the LM Curve represents the equilibrium in the money market. The following are the equations for the IS-LM curve: IS relation : Y = C(Y – T) + I(Y, r + x) + G LM relation : r = ?̅ Y=Output, C=Consumption, T=Tax, I=Investment, G=Government Expenditure; r=interest rate, x=risk premium. a. What is unconventional monetary policy? When the central bank should conduct this kind of monetary policy? Give an example of unconventional monetary policy. b. Draw the IS-LM movement of unconventional monetary policy and tell the story behind it.
Within the IS-LM curve model, a decline in expectations would a. lower income, but leave the interest rate unchanged. b. lower the interest rate, but leave income unchanged. c. increase income and lower the interest rate. d. lower income and the interest rate.