=0. An economy is described by the following equations:AD:SRAS:Okun's law:Y = 4000 + 2(M/P)Y = ybar + 100(P-P)(Y-ybar)/ybar =-2(u-ubar).Assume ybar 6000 and ubar=0.05.=A) Suppose that the nominal money supply has long been at M = 4000 and is expected by thepublic to remain constant forever.The equilibrium value of P isThe equilibrium value of P is,The equilibrium value of Y is,The equilibrium value of u isThe equilibrium value of x is,(2 points each)B) A totally unexpected increase in in the money supply occurs, raising it from 4000 to 5250.[Part B is for extra credit]The short run equilibrium value of P isThe short run equilibrium value of Pe is_The short run equilibrium value of Y isThe short run equilibrium value of u is.The value of unanticipated inflation, which is defined as (P-P)/P, is,The value of the slope of the short-run Phillips curve is(2 points each)

A)Step 1: Find the equilibrium value of P.In the long run, Y = Y^bar = 6000 (by…

Answered: =0. An economy is described by the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider an economy with a constant nominal money supply, a constant level of real outout Y= 400, and a constant real interest rate r 10%. Suppose that the income elasticity of money demand is 1.20 and the interest elasticity of money demand is-0.10. a. By what percentage does the equilibrium price level differ from its initial value if output increases to Y 480.00 (and rremaine at 10%)? %AP= (enter your result as a percentage rounded to two decimal places). b. By what percentage does the equilibrium price level differ from its initial value if the real interest increases to r-12.50% (and Y remaina at 400)? %AP (enter your result as a percentage rounded to two decimal placea). c. Suppose that the real interest rate inoreases to re 12.50%. By what percentage would real output have to increase for the equilibrium price level to remain at its initial value? %AY- T(enter your reault an a percentage rounded to two decimal places)
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).
Suppose Singsville National Bank lends money to Ari at 1.5% interest. If inflation is 1%, calculate the real interest rate that Ari pays for the loan.Did Singsville National Bank lose or earn money in this exchange?
Suppose that the nominal interest rate is zero, that is, R= 0. a. In this case, in terms of real income Y and the price level P, the real equilibrium quantity of credit card balances is
4. An economy is described by the following equations: Y 4,000+2(MIP) AD SRAS Okun's Law Y= Y +100(P-P) (Y-YY=-2(u-u) In this economy full-employment output Ỹ equals 6,000 and the natural unemployment rate u equals 0.05. a. Suppose that the nominal money supply has long been constant at M 4,000 and is expected by the public to remain constant forever. What is the long-run equilibrium value of the price level (P)? What is the equilibrium value of the expected price level (P)? What is the long-run equilibrium value of output (Y)? What is the long-run equilibrium value of the unemployment rate (u)? b. A totally unexpected increase in the money supply occurs, raising it from 4,000 to 4,400. What is the short-run equilibrium value of the expected price level? What is the short-run equilibrium value of the price level? What is the short-run equilibrium value of output? What is the short-run equilibrium value of the unemployment rate? What is the value of cyclical unemployment? What is the…
A standard "money demand" function used by macroeconomists has the form In(m)=Bo+B₁In(GDP) + B₂R, Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent per year. Supposed that B₁ = 1.51 and ₂ = -0.07. What is the expected change in m if GDP increases by 6%? The value of m is expected to (Round your respon by approximately %. ger) increase decrease
The supply of credit cards is given by q = 1400X, where X are real credit card balances, q isthe real price of the credit card balance. You also know that R = 0.05 (nominal interest rate)and P = 100. Answer the following questions about this:(a) If the money supply is M s= $5, 000, if P = 100 is the equilibrium price level, find Y (realoutput).(b) Suppose that the Federal Reserve Bank decides to increase the money supply by 10%.How much is the inflation rate as a result? Explain and justify your answer. (c) Further suppose that at the same time, real output, Y , increases by 10%. Now what isthe inflation rate? Does our quantity theory of money hold here? 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.
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.
Assume that the demand for real money balance (M/P) is M/P = 0.6Y-100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be?
Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) 1 = 400 – 15r M = 200 + Y – 100r G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. Department of Economics a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.
Assume that the economy is initially operating at full employment. Analyze the effect ofan increase in the nominal money supply using the IS-LM model. What happens to real output and interest rate in the long-run (what is the new long-runequilibrium)? Explain and show graphically
1. IS-LM-AD Suppose the economy of Canada is governed by the following consumption function, investment function, and fixed values of government expenditure and taxes C =300 +0.6(Y-T), I =700- 80r, G =500, T =500. Further, suppose that the money demand function, money supply, and price level are given by =Y- 200r, М - 3000, P 2. (a) Compute the IS and LM curves, and plot these curves for interest rates ranging from 0% to 15%. Find the equilibrium levels of Y and r. (b) Suppose that the government increases expenditures to G = 700. What are the new equilibrium values of Y and r. What is the government expenditure multiplier? 500), compute the aggregate (c) For the initial levels of government expenditure (G demand curve. What is the level of aggregate demand when the price level is equal to 4? (d) Now consider the case where G increases to 700. What is the new level of aggregate demand when holding the price level equals 4? 1 (e) Suppose that investment is now more sensitive to…

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