The following set of equations describe an economy:C = 16,000+ 0.5 (YT) - 50,000rIP = 7,000 - 24,000rG = 8,200NX = 1,800T = 8,50048,620Y* =a. Find a numerical equation relating planned aggregate expenditure to output and to the real interest rate.PAE=b. At what value should the Fed set the real interest rate to eliminate any output gap? (Hint. Set output Yequal to the value of potentialoutput given above in the equation you found in part a. Then solve for the real interest rate that also sets planned aggregateexpenditure equal to potential output.)Instructions: Enter your response as a whole number.Real rate of interest:%

The planned aggregate expenditure equation is the sum of consumption, planned investment, government…

Answered: The following set of equations describe…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the market for money, use a graph to explain the effect of a decrease in the price level on the equilibrium interest rate. 1.) Using the line drawing tool, draw either a new demand or supply curve. Properly label your curve. 2.) Using the point drawing tool, plot the new equilibrium point. Carefully follow the instructions above, and only draw the required objects. How does the change in the interest rate affect planned investment spending, consumption spending, and net exports? The change in the interest rate demonstrated above planned investment spending, consumption spending, and 19 首忌之 eds net exports. LIID Interest rate 11 MP Real money balances M 下一张

Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. Money Supply 10 8 4 2 5 10 15 20 MONEY (Billions of dollars) INTEREST RATE (Percent) 12 0 0 Money Demand 25 30 . Money Demand The following graph plots the aggregate demand curve for this economy. Money Supply Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they restored in the money market at an interest rate of % ? than the quantity of money their money holdings. In order to do so, they will interest rates until equilibrium is
You are given the following information regarding a hypothetical economy: Consumption function is C= 0.3+0.8(Y-T) Investment I=3.5- 50i G= 3 T= 2.5 The demand for real money is M/P=2+0.2Y-50i. The real stock of money is 3. Answer the following questions: Derive the IS Curve а. b. Derive the LM Curve What are the equilibrium equilibrium output and interest rate? с.
Suppose home owners owe $7 trillion in mortgage loans. Instructions: Enter your responses as a whole number. In part b, do not include a negative sign (-) with your answer. a. If the mortgage interest rate is 4 percent, approximately how much are home owners paying in annual mortgage interest? billion b. If the interest rate drops to 2 percent, by how much will annual interest payments decline? $ billion c. How will this change in the interest rate impact aggregate demand? Aggregate demand will [(Click to select)
23. Consider an economy described by the following: C = $3.25 trillion I = $1.3 trillion G = $3.5 trillion T = $3.0 trillion NX = 2$1.0 trillion f = 1 тре- 0.75 d = 0.3 x = 0.1 X= 1 T = 1 a. Derive expressions for the MP curve and the AD curve. b. Assume that T = 1. Calculate the real interest rate, the equilibrium level of output, consumption, planned investment, and net exports. c. Suppose the Fed increases T to 7 = 2. Calculate the real interest rate, the equilibrium level of output, consumption, planned investment, and net exports at this new level of F. d. Considering that output, consumption, planned investment, and net exports all decreased in part (c), why might the Fed choose to increase T?
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. 12 Money Supply 10 1 Money Demand 2 0 0 20 40 60 80 MONEY (Billions of dollars) INTEREST RATE (Percent) 100 120 Money Demand Money Supply ?
QUESTION 26 Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. "2 "1 MS -MD 2 -MD₁ 1 P2 P₁ 1₂2 1₁ AD Refer to Figure 34-2. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the a. interest-rate effect. b. Fisher effect. c. exchange-rate effect. d. wealth effect.
The following set of equations describe an economy: C = 14,400 + 0.5 (Y − T) − 40,000r Ip = 8,000 − 20,000r G = 7,800 NX = 1,800 T = 8,000 Y* = 40,000 Suppose that the real interest rate (r) is 10%. Is the economy in long run equilibrium? If not, what real interest rate should central bank set to restore the economy back to the long run equilibrium? And what methods can central bank use to adjust the interest rate? (Round your answer to 2 decimal places)
Graphically show and link the long-run equilibrium in goods market and money market, using MD-MS diagram, Investment Expenditure diagram, AE-Y diagram, and AD-AS diagram. a. Clearly explain (using chain reactions) and show the short-run effect of an increase in money supply on the equilibrium of this economy. Make sure you clearly show the impact in all diagrams. b. In the same way, explain and show the long-run effect of the increase in money supply noting that your answer to this question picks up where you finished in part (a) and describes the adjustment process according to the output gap. c. Clearly describe based on your graphs, the long-term neutrality of money. d. Is the composition of Y* any different after the new long-run equilibrium establishes?
Problem 26-11 (algo) For the economy described below: C = 2,500 + 0.9(Y - T) - 8,000r IP = 2,200 - 8,000r G = 2,500 NX = 0 т 3,600 a. Suppose that potential output Y* equals 31,600. What real interest rate should the Fed set to bring the economy to full| employment? You may take as a given that the multiplier for this economy is 10. Instructions: Enter all your responses as whole numbers. Real rate of interest: 5 O % b. Suppose that potential output Y* equals 26,800. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 10. Real rate of interest: 8 O % c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment. Planned investment P= 3160 * National saving S= 3160
Exercise 1 cr+1 Consider the money supply Ms=mxB , m = cr+rr Assume that the demand for real money is given by the equation (M/P)d=0.25Y, and that the output has been growing 3% per year. Assume, further, that you have been called before Congress to testify about the long-run effects of increasing the growth of the money supply to 10 % per year. 1. State, compute and explain the long-run effects of this change on the inflation rate, on the nominal interest rate, on the real interest rate, on investment and on the real GDP. For each of them, argue both using the formulae that we studied and the macroeconomic dynamic beyond the effect. 2. Compute the implied money velocity. Suppose that the actual nominal value of the output (PY) is 1000, the value of the reserves is 50 and the toal value of the deposits is 75. Find the actual money multiplier. 3. State the different ways in which the central bank can achieve the change (+10%) in the money supply (think about the variables that can…
Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. INTEREST RATE 12 10 8 2 0 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 = Money Demand Money Supply ? Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase…

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