The economy is currently producing at potential output. The relationship between the real interest rate short-run output is described by an IS curve with b = and the current real interest rate is 6%. The MPK is 3%. Suppose a negative aggregate demand shock causes short-run output to drop to -1.5%. To stimulate investment and bring the economy back to potential output, the central bank should set the real interest rates to percent.

The economy is currently producing at potential output. The relationship between the real interest rate short-run output is described by an IS curve with b = and the current real interest rate is 6%. The MPK is 3%. Suppose a negative aggregate demand shock causes short-run output to drop to -1.5%. To stimulate investment and bring the economy back to potential output, the central bank should set the real interest rates to percent.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 4CQQ

See similar textbooks

Similar questions

A4
Please no written by hand solution Consider a scenario of a closed economy in the short run where price level is fixed. Assume that bothtaxes and money supply increase in a way that keep output constant in equilibrium (suppose that themarginal propensity to consume is less than one). Which of the following may result from the policychange?a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
Chapter 11: Aggregate Demand I: Building the IS-LM Model Question: The Keynesian cross shows ..... of and ....... in the ... run. Lütfen birini seçin: a. equality / planned expenditure / income / short O b. determination / equilibrium income / the interest rate / long. determination / equilibrium income / the interest rate / long. O d. equality/planned expenditure/ income / long. Pe determination/ equilibrium income / the interest rate / short.
Suppose in the real business cycle model that there is a simultaneous temporary increase inboth current government spending and in the current money supply. Draw diagrams for thelabour, goods and money market, and the production function. Determine the equilibriumeffects of these two shocks occurring simultaneously on employment, output, consumption,investment, money, real wages, the real interest rate, and the price level. Provide a detailedeconomic analysis explaining your results with the aid of the diagrams.
Suppose an economy is in long-run equilibrium.a. Use the model of aggregate demand andaggregate supply to illustrate the initialequilibrium (call it point A). Be sure to includeboth short-run aggregate supply and long-runaggregate supply.b. The central bank raises the money supply by5 percent. Use your diagram to show whathappens to output and the price level as theeconomy moves from the initial equilibrium to thenew short-run equilibrium (call it point B).c. Now show the new long-run equilibrium (call itpoint C). What causes the economy to move frompoint B to point C?d. According to the sticky-wage theory of aggregatesupply, how do nominal wages at point Acompare with nominal wages at point B? How donominal wages at point A compare with nominalwages at point C?e. According to the sticky-wage theory of aggregatesupply, how do real wages at point A comparewith real wages at point B? How do real wages atpoint A compare with real wages at point C?f. Judging by the impact of the money…
need correct answer with why other option are incorrect. if you cant explain why other option are incorrect you skeep it otherwise i report yopur answer. good answer is rate bu thumps up. thank you!!
Suppose the economy is in a long-run equilibrium.a. Draw a diagram to illustrate the state of theeconomy. Be sure to show aggregate demand,short-run aggregate supply, and long-runaggregate supply.b. Now suppose that a stock market crash causesaggregate demand to fall. Use your diagramto show what happens to output and the pricelevel in the short run. What happens to theunemployment rate?c. Use the sticky-wage theory of aggregate supplyto explain what happens to output and the pricelevel in the long run (assuming no change inpolicy). What role does the expected price levelplay in this adjustment? Be sure to illustrate youranalysis in a graph.
Please see attachment and type out the correct answer ASAP with proper explanation of it.within 50min. Will give you thumbs up only for the correct answer.thank you
Chapter 11: Aggregate Demand I: Building the IS-LM Model Henüz 1 2 3 cevaplanmadı 5,00 üzerinden Question: Which of the following is false? 10 11 12 15 İşaretlenmiş F Soruyu işaretle 19 20 O a. The Quantity theory assumes income level to change and Keynesian model assumes it to be fixed. Uygulamayı bitir ... Kalan süre 0:14:53 O b. The Fisher equation implies that an increase in inflation will also increase nominal interest rate since real interest rate is constant. The Quantity theory assumes real money balances to be constant but the liquidity preference (Keynes) theory assumes it to change. Od. The Quantity theory assumes nominal interest rate to be determined by price level and the liquidity preference (Keynes) theory assumes it to be determined by real interest rate. The liquidity preference (Keynes) theory implies that an increase in nominal interest rate will increase real interest rate since price level is fixed. O e.
Which of the following would increase current Aggregate Demand in an country? Select one: a) Highest interest rates b) Avaialbel of less savings schemes c) Falling growth d) Higher taxes e) Precautionary savings
Suppose the economy is in a long-run equilibrium. There is a simultaneous increase in the money supply, a tax cut, an increase in the level of investment confidence about future business conditions, and a depreciation of the Canadian dollar. In the short run, what would you expect to happen given a positively sloped SRAS curve? Select one: O a. The price level and real GDP will both increase. cross out O b. The price level and real GDP will both cross out decrease. O c. The price level and real GDP will both stay the cross out same. O d. The price level will increase, and the real GDP cross out will decrease. O e. The effect on the price level and real GDP is cross out indeterminate.
Consider a Keynesian business cycle theory that combines the IS-LM model with the assumption that investors become infected with optimism. Does the theory explain observed cyclical behavior of each of the following variables? Еmployrment O A. is procydlical in the data, but is countercydlical in the model. Hence the model does not match this business cycle fact. O B. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business cycle fact. OC. is countercyclical in the data, and is countercyclical in the model. Hence the model matches this business cycle fact. OD. is procyclical in the data, and is procyclical in the model. Hence the model matches this business cycle fact. Average labor productivity O A. is procyclical in the data, but is countercyclical in the model. Hence the model does not match this business cycle fact. OB. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business…