(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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Consider the extended IS-LM model analyzed a) Graphically analyze the effect of an increase in the risk premium on demand in the goods market, the IS curve and equilibrium production. Explain briefly. b) If there is no change in fiscal and monetary policy, what will the effects be on consumption and investment? Explain briefly. c) How should fiscal policy react to offset the effect of the rising risk premium on the equilibrium level of production? Suppose there is no change in monetary policy. Represent graphically using IS curves and LM and briefly explain
Consider the following IS-LM model: C = 228 +0.51YD /= 158+0.16Y-873/ G = 257 T = 206 i = 0.04 The IS equation is determined to be Y= 1,630.12-2,645.45. The LM equation is given as i = 0.04. Using the IS and LM equations, the equilibrium real output, Y, is. (Round your response to the nearest integer.) Using the IS-LM model, the equilibrium value of consumption, C, is. (Round your response to the nearest integer.) Using the IS-LM model, the equilibrium value of Investment, I, is (Round your response to the nearest integer.) Using your answers above, determine the value of C+I+G to confirm the value found above for Y. C+I+G = (Round your response to the nearest integer.)
In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.
Not sure if my answers are correct and confused on the last question
Assume the following information for a closed economy operating within the Keynesian IS-LM framework: C = $200 + 0.6Yd C = consumption Yd=disposable income I = investment I= $270 - 9r r = interest rate G= $400 G = government expenditure %3D T= 0.4Y T= taxes an fo be cl Y = aggregate income M" = money demand Md = $90 + 0.3Y- 5r I MS= $450 M = money supply Problems & Questions: Derive and state the equations for the IS and LM curves, and present these curves graphically. Show the steps of your work and identify clearly the respective intercept as well as slope of both curves. a. b. Find values of aggregate income (Y) and interest rate (r) that equilibrate the goods market and money market simultaneously, and show these equilibrium values on a well-labeled graph (diagram). Show clearly how you have found your answers. c. If the autonomous component of investment increases by $50, how would your answer to part (a) change? Explain and show graphically.
Consider a closed economy in which: C=250+0.8 (Y-T)I=400−30 rT=150G=220Y=C+I+G where Y is GDP, C is consumption, I is investment, T is taxes, G is government purchases, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 3,000. a. Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 3 percent, so r = 3. Solve for GDP (Y). Y=______ b. How much is the private saving (SPVT)? SPVT=______ c. How much is the government spending multiplier (k)? k=______ d. Assuming no change in monetary policy, what change in government purchases (ΔG) would restore full employment? ΔG=______ e. Assuming no change in fiscal policy, what change in the interest rate (Δr) would restore full employment? Δr=______
Consider the following Keynesian small open economy: c = 50 +0.63Y d = 80 - 500r G = 40 NX = 100 -0.13Y -e e 70 M= 120 L-0.5Y - 300r P- 300 In this economy, the real interest rate does not deviate from the foreign interest rate. Note that if this economy is in general equilibrium, the value of the Interest rate r is 0.1 and the price level is P=1. C. Assuming fiexible exchange rates and a fixed domestic price level, if the foreign interest rate increases by 0,06, then domestic output becomes (Type an integer or a decimal rounded to two decimal places as needed.)
Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y How much investment (I) will be crowded out if the government increases its purchases by deltaG = 160 and nominal money supply (M) remains unchanged?
Consider the following economy: Labor supply: Nt= 90 Capital stock: Kt = 90 Government spending: Gt = 20 Tax collections: Tt = 20 Production function: Yt = 2(Kt)0.5 (Nt)0.5 Real money demand Lt = 2Yt - 200rt Consumption function: Ct = 16 + 0.8(Yd)t Domestic price level: Pt = 4 Investment function: It = 25 - 50rt Nominal money supply: Mt = 1296 Plot (a)-(d) on the IS-LM and AD-SRAS-LRAS diagrams. Make sure to label (i) the axes, (ii) the curves and (iii) the initial equilibrium levels.
subquestions a and b. * for a) - need to find the IS equation, also the LM equation and the equilibrium.
According to the logic of the investment demand curve in the IS model, which of the following statements is correct? Select one or more: Oa When R is equal to F, monetary policy is neutral and investment as a share of output Y is at the level determined by a,Y. O b. When R is equal to F, monetary policy is neutral and investment as a share of output Y is 0. The value of F is determined the marginal product of capital, a supply side feature of the economy Od. When R is greater than F, monetary policy is stimulating total spending.
In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.

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