Y=C(Y)+I(r)+G, Yd = Y-ty C=a+byd M = ky-hr P P = y(Y-Y), y >0 a. In the above model if P is an endogenous then P will be exogenous. In contrast if P is endogenous then P=0. True/false? Explain your answer. b. Plot the phase diagram of the above model in - Y space | c. Use your graph, trace out the short-run and the long-run effect of an increase in marginal propensity to consume (b) on equilibrium output, money supply, and the price level when central bank follows a fixed real money (M/P) policy. Plot the trajectory of Y,M and P against time.
Y=C(Y)+I(r)+G, Yd = Y-ty C=a+byd M = ky-hr P P = y(Y-Y), y >0 a. In the above model if P is an endogenous then P will be exogenous. In contrast if P is endogenous then P=0. True/false? Explain your answer. b. Plot the phase diagram of the above model in - Y space | c. Use your graph, trace out the short-run and the long-run effect of an increase in marginal propensity to consume (b) on equilibrium output, money supply, and the price level when central bank follows a fixed real money (M/P) policy. Plot the trajectory of Y,M and P against time.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Answer ASAP
![Q.1
Consider the following IS-LM model
Y = C(r*)+I(r)+G, Y = Y - tY
C = a +bY°
M
= kY – hr
P
P = y(Y – F), y >0
a. In the above model if P is an endogenous then P will be exogenous. In contrast if P
is endogenous then P= 0. True/false? Explain your answer.
b. Plot the phase diagram of the above model in r - Y space|
c. Use your graph, trace out the short-run and the long-run effect of an increase in marginal
propensity to consume (b) on equilibrium output, money supply, and the price level when
central bank follows a fixed real money (M/P) policy. Plot the trajectory of Y,M and
P against time.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd3ded170-a9fc-4b9e-8ba5-b8c9002cdbbd%2Fcdcc8d09-a01d-47ed-abb1-15b0a26bf273%2Fxpxt2b5_processed.png&w=3840&q=75)
Transcribed Image Text:Q.1
Consider the following IS-LM model
Y = C(r*)+I(r)+G, Y = Y - tY
C = a +bY°
M
= kY – hr
P
P = y(Y – F), y >0
a. In the above model if P is an endogenous then P will be exogenous. In contrast if P
is endogenous then P= 0. True/false? Explain your answer.
b. Plot the phase diagram of the above model in r - Y space|
c. Use your graph, trace out the short-run and the long-run effect of an increase in marginal
propensity to consume (b) on equilibrium output, money supply, and the price level when
central bank follows a fixed real money (M/P) policy. Plot the trajectory of Y,M and
P against time.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 9 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education