(1) Suppose that the demand for real money balances depends on the interest rate, r, and ondisposable income Y - T; in other words, suppose that the correct way to write the LMequation isM/PL(r,Y-T).With this change to the IS- LM model, can you tell whether a tax cut increases or decreasesoutput in a closed economy? Illustrate graphically the short-run effects on interest rate andoutput. Be sure to label: i) the axes, ii) the curves, iii) the initial equilibrium values; iv) thedirection the curves shift; and v) the terminal equilibrium values.

Answered: Image /qna-images/answer/6cebf354-3723-4186-b81e-9e347514b4ac.jpg

Answered: (1) Suppose that the demand for real…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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26. Suppose the intersection of the IS and LM curves is to the right of the FE line. According to, the IS-LM model, what would most likely eliminate a disequilibrium among the asset, labor, and goods markets? A) A rise in the price level, shifting the LM curve up and to the left. B) A fall in the price level, shifting the LM curve down and to the right. C) A rise in the price level, shifting the IS curve up and to the right. D) A fall in the price level, shifting the IS curve down and to the left.
3
Consider an economy that begins in a situation in which output equals potential output. Consider the modified representation of the IS-LM diagram in which the y-axis is the nominal interest rate versus the real interest rate, where we take into account the presence of the zero lower bound (Graph A). Suppose that a collapse in house prices impacts the economy. 1. Use either the 4-point curved line drawing tool or the line drawing tool to show the effect on either the IS or the LM curve. Hint: Only one curve will shift. 2. Use the point drawing tool to indicate the new equilibrium output and nominal interest rate. Carefully follow the instructions above and only draw the required objects. Graph A 0- урот e₁ LM IS Select Line 4-point Curve Point
(b) Use the IS-LM model to illustrate graphically the final impact of the reduction in government spending on output and interest rates under two possible scenarios: i) The Central Bank holds the money supply constant. ii) The Central Bank holds the level of output constant.
Suppose that economy of Portugal is characterized by the following C = 200 + 0.5 (Y - T) Represents the consumption function I = 600 – 30 r represents the investment function G = 300 represents the public spendingT = 300 represents the level of taxation (m/p)d = y - 40 r represents the money demand function (m/p)s = 1500 r represents the real money supply d Y represents the global output Find the IS curve the LM curve and deduce the equilibrium level of interest rate equilibrium level of income. The government increases the money supply by 100. How does it affect the equilibrium level of income? Justify your answer. Calculate the new equilibrium... Equilibrium level of income
State whether True/false.
Suppose that the following C, I, G, and NX is given by: C = 100 + 0.8OY G = 100 | = 200 NX = 300 - 0.05Y And suppose also that this leads to an AD & AS given by: AD: Y = 10,000 - 3p AS: Y = 2p In short-run (AD = AS) equilibrium, what is the National Savings Supplied (NS)?
part C and D
I need help soon as possible I have hour and half to finish please.
What is the impact of monetary and fiscal policy if (a) money demand does not depend on income, LM curve is horizontal; and (b) If money demand is extremely sensitive to interest rate, LM curve is horizontal.
Please send me answer within 10 min!! Please provide all graphs!! I will rate you good for sure!!
True-false questions: Suppose the consumption equation is represented by the following: C = 250 + .75YD. The multiplier in this economy is 4. The money demand curve will shift to the right when the interest rate drops. In the IS-LM-PC model, LM curve is upward sloping . Okun's law shows that when the unemployment rate is above the natural rate, output is below potential. Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we know that the money market and bond markets are in equilibrium and the goods market is not in equilibrium. The original Phillips curve implied or assumed that the actual and expected rates of inflation would always be equal.

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