4 (dImagine that this economy applies restrictive monetary policy to reduce the risk of overheating of the economy. Thetarget is a GDP (Y) of 980. How much change is required in the money supply (M*)?Your task now is to calculate the new equilibrium interest rate (i1 ) and how large the money supply should be: (6 points)11andM =

In this scenario, the economy is applying restrictive monetary policy to reduce the risk of…

Answered: 4 (d Imagine that this economy applies…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8- (10 pts) According to the IS-LM model, what happens in the short run to the interest rate, income, consumpti on, and investment under the following circumstances? Be sure to illustrate your answer by using an appropriate graph. a) The central bank increases the money supply. b) The government increases government purchases. c) The govermment increases taxes. d) The government increases government expenditure and taxes by equal amounts.
TOPIC: Classical economists and interest rate flexibility
2. Answer the following questions. 2.1 One good: barley. The economy has enough labor, capital, and land to produce Y = 800 bushels of barley. V is constant. In 2020, money supply (MS) = $2,000 P = $10/bushel. For 2021, the central bank increases MS by 10%. According to the quantity equation, compute the 2021 values of nominal GDP and P. Compute the inflation rate for 2020–2021. 2.2 If you deposit money in the bank for one year. Scenario 1: nominal interest rate = 10%, inflation rate = 0% Scenario 2: nominal interest rate = 25%, inflation rate = 15% In which scenario does the real value of your deposit grow the most? Explain. 2.3 Inflation distorts relative prices. What does this mean and why does it impose a cost on society?
INTEREST RATE (Percent) 12 11 10 9 co 5 4 3 2 1 0 Supply Demand 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 LOANABLE FUNDS (Billions of dollars) ? Investment is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied decreases Suppose the interest rate is 5.5%. Based on the previous graph, the quantity of loanable funds supplied is greater than the quantity of loans demanded, resulting in a surplus of loanable funds. This would encourage lenders to lower the interest rates they charge, thereby decreasing the quantity of loanable funds supplied and increasing the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of 5%
I need assitance on how to get these answers.
2
Question: In an economy experiencing stagflation, characterized by simultaneous high inflation and high unemployment, which of the following policy combinations would most likely exacerbate the situation? a) Increasing government spending and reducing interest rates b) Decreasing government spending and increasing taxes c) Implementing tight monetary policy and expanding fiscal policy d) Raising interest rates and reducing government spending
1) Suppose gold (G) and silver (S) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run (Qg = 75 and Qs = 300) and that the demands for gold and silver are given by the following equations: PG = 975 – QG + 0.5Ps and Ps = 600 – Qs + 0.5PG. What are the equilibrium prices of gold and silver?
(b). Consider an economy described by the following equations Y =C+I+G Y = 5000; G = 1000; T = 1000; C = 250 + 0.75 (Y-T); I = 1000-50r (? --- cqu. ii) Now suppose that G rises to 1,250, compute: (1) National savings, (2) The new interest rate.
11. The U.S. economy slowed significantly in early 2008, and policy makers were extremely concerned about growth. To boost the economy, Congress passed several relief packages (the Economic Stimulus Act of Act of 2009) that combined would deliver about $700 2008 and the American Recovery and Reinvestment billion in government spending. Assume, for the sake of argument, that this spending was in the form of payments made directly to consumers. The objective was to boost the economy by increasing the disposable income of American consumers. a. Calculate the initial change in aggregate consumer spending as a consequence of this policy measure if MPC in the United States is 0.5. Then calculate the resulting change in real GDP arising from the $700 billion in payments. 76177 b. Illustrate the effect on real GDP with the use of a graph depicting the income-expenditure equilib- rium. Label the vertical axis “Planned aggregate spending, AE Planned" and the horizontal axis "Real GDP." Draw two…
4. Organize each of the following equations to express P as a function of Q. Q as a function of P P as a function of Q Q=25-P -> %3D Q=12-3P 6Q=14-2P

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