The demand for money is given by MD=Y 10000r where Y is the GDP and r is the real interest rate. The supply of money is set by the Central Bank to Mg = 1000. Equilibrium in the money market happens when Mp = Ms. D Find the equilibrium GDP in the money market by solving the system MD=Y - 10000r 1000 Ms MD = Ms for Y, MD and Ms. Note that your solution for Y will depend on r! - (3) (4) (5).
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The demand for money is given by MD=Y 10000r where Y is the
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- Explain how an increase in government expenditure can affect the goods market and moneymarket by taking the link between the two markets into account.Suppose that the central bank wants to stimulate the economy by increasing the money supply. The bankers estimate that the velocity of money is 3.3 and that the price level will increase from 120 to 128 due to the stimulus. Using the quantity equation of money, what will be the increment of a $320 billion dollar increase in the money supply on the quantity of goods (In Billions)and services in the economy given an initial money supply of $4.1 trillion? (Please round your answer to include 2 decimal places. Enter the ammoun in Billions, that is, If the total quantity decreases by 1 billion, enter your answer as -1.)Consider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, El. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 10
- The following equations describe a certain economy C=200+0.75Yd consumption function I = 100-50r Investment function T = 60+0.2Y Tax function G = 200 Government expenditure X = 100 Exports M = 100 + 0.02Y Import function MS = 2000 Money supply MD = 0.3Y-10r Money demand Required: Derive the IS and LM equations. Caleulate the equilibrium Y, C, T, M and I. General equilibrium occurs when IS and LM curves intersect. Explain the conditions to be satisfied at this intersection, and explain the causes of d'sequilibrium.Consider an economy that is characterized by the following equations: C = 150 + 0.65(Y - T) – 200r (Consumption) (Тахation) (Investment Demand) (Government Expenditure) (Exports) (Imports) T = 100 + 0.2Y I = 200 G = 500 - 200r X = 100 IM = 150 + 0.1(Y – T) – 100r (Money Demand) (Money Supply) L = -25 + 0.5Y - 500r M = 133,200 pSR = 120 (Short-Run Price Level) Answer each of the following questions. In your answers, be sure to state any assumptions that you impose and provide an explanation. Derive the AD and SRAS curves. Solve for the short-run equilibrium in the AD-SRAS model. Is your solution the same as in part 3 above? Why or why not? Is the fiscal multiplier in this economy larger or smaller than if the asset market were not accounted for in the model? Briefly explain. True or false? The aggregate demand curve is downward-sloping because the demand for goods and services increases as the price decreases. Briefly explain.Consider a closed economy where the goods and money markets are described by the following relationships: C 500+ 0.8 (Y-T) I= 500 10r M P a) 0.1Y35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). mpute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. e) Suppose that, instead of relying on monetary policy, the government intends to take an active role in restoring the economy to the original equilibrium by pursuing an expansionary fiscal policy. How much should government spending change by? With the help of graphs, explain very carefully, the impact of this policy on the economy. f) An…
- 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.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…Task 3 Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) I= 400 – 15r M/P = 200 + Y – 100r G = 150 T = 100 M = 2000 P| =2 Where Cis planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. c) The government reduces taxation to T=50 in order to boost economic activity. Assume no changes in The values of all the other variables. 1. What is the immediate increase in income before the economy adjusts to its new equilibrium? 2. What are the economy's equilibrium level of output Y and interest rate following the cut in taxation? Compute the equilibrium level of consumption and investment spending. With the help of the IS/LM graph, carefully explain what happens to the economy following the cut in taxation. d)lf the government intends to pursue monetary policy instead of fiscal policy in…
- Answer the question based on the following information: For transactions, households and businesses want to hold an amount of money equal to one-half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. If nominal GDP is $300 and the supply of money is $250, the equilibrium interest rate will be Interest Rate Amount of Money Demanded as an Asset 10% $20 8 40 6 60 4 80 2 100 Multiple Choice 4 percent. 10 percent. 6 percent. 8 percent. 2 percent.Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)? B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)? C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.answer c and d Suppose that the following system of equations describe the macroeconomy of a hypothetical country: Y= C(y)+I(i)+G : IS or goods market M/p=L(i,y) : LM or money market b) Taking money supply and government expenditure as exogenous and the price level as fixed, determine and provide economic intuition for the signs and magnitudes of the following multipliers dY/dG and di/dG c) For a simultaneous increase in both the interest elasticity of investment and interest elasticity demand for money parameters, determine the net effect on the values of the multipliers in part b). d) For a horizontal LM curve, determine the numerical values of your answers in part b) above if: Marginal propensity to consume=5/6 Tax rate=0.25 Interest elasticity of investment=5 Interest elasticity of demand for money=50 Income elasticity of demand for money=2 answer c and d only
