EBK PRINCIPLES OF ECONOMICS
EBK PRINCIPLES OF ECONOMICS
7th Edition
ISBN: 8220102958395
Author: Mankiw
Publisher: CENGAGE L
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Chapter 19.1, Problem 1QQ
To determine

Compensating differential.

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Some people say that since inflation can be reduced in the long run without an increase in unemployment, we should reduce inflation to zero. Others believe that a steady rate of inflation at, say, 3 percent, should be our goal. What are the pros and cons of these two arguments? What, in your opinion, are good long-run goals for reducing inflation and unemployment?
Explain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve. 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.
Suppose that a person’s wealth is $50,000 and that her yearlyincome is $60,000. Also suppose that her money demand functionis given by  Md = $Y10.35 - i2Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on her demand for bonds?b.  What are the effects of an increase in income on her demand for money and her demand for bonds? Explain in words
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