Assume that the one-year interest rate is on the vertical axis of the IS-LM model and that the yield curve is initially upward sloping. Suppose that financial market participants expect that the central bank will conduct an open market purchase of bonds in the future. Given this information, we would expect which of the following to occur? OA The yield curve will become downward sloping. There will be no change in the slope of the yield curve. OB. OC. The yield curve will become flatter. The yield curve will become steeper. OD. The yield curve will become vertical. E.

8. Given the following information: C = Ca + 0.8Yd Ip = 1900 - 40r G = 1800 NX = 700 - 0.14Y %D T= 200 + 0.20 Y Ca = 260 - 1Or Md/P = 0.25Y - 25r Ms/P = 2000 Find: 1. The equilibrium level of interest rate and output. 2. If Government expenditure increased by 100, find the new equilibrium level of interest rate and output

As a result of this flight to liquidity, the interest rate in the 20-year Treasury bonds market ________________ ( decreases/ remains the same/ increases) , while the interest rate in the T-bill market ________________ ( decreases/ remains the same/ increases) . Consequently, the default risk premium spread ________________ ( decreases/ remains the same/ increases)

Please pleaseee do this Question : For this question assume that the real money demand function is L(R, Y) = kY - hR where  k > 0 represents the sensitivity of the money demand to income and h > 0 represents the sensitivity of the money demand to the interest rate. Suppose that these sensitivity parameters are not known for the economy of Macroland and there are two possibilities: it is either i) high k and low h, or ii) low k and high h. To understand which one of these two scenarios is correct you analyze a given policy change: an increase in the overall level of taxes. Using the AA-DD model, compare and contrast the short run effects of this policy change in Macroland under these two scenarios. Explain your results intuitively.

In this question, use the approximate formula-as given by the Fisher equation-for calculating the the real rate of interest. Assume a fixed real interest rate and everyone believes the Central Bank's forecasts. Believing that inflation will be 1% for the year, the current yield on a government bond that matures in one year is 2.9%. The Central Bank then revises its inflation forecast to 1.6% for the year. What will be the yield on government bonds maturing in one year after this revision? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the negative sign.

Q3. Consider the following Cobb-Douglas production function: Y = AL K1-0 where 0 = 0.25 Assuming settings of Neo-Classical theory of investment derive the following: a. Function representing the current value of desired stock of capital. b. Current value of desired stock of capital when output is 5 billion $ while rental cost is 0.12. c. Now suppose output is expected to rise to 7 billion $, find corresponding value in desired stock of capital? d. How would you define value of investment in the given context of discussion?

Let's denote the price of a nonmaturing bond (called a consol) as P. The equation that indicates this price is P, =-, where I is the annual net income the bond generates and r is the nominal market interest rate. a. Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: $ 3333. (Round your answer to the nearest whole dollar.) b. Calculate the bond's price, if the market interest rate increases to 12 percent: $. (Round your answer to the nearest whole dollar.)

2. Suppose that a representative household is part of a two-period economy, with a commodity and a credit market. He holds no initial assets (bonds or money) and no final assets, by the end of the second period. Assume that, for some exogenous reason, the price level decreases at the beginning of period one, before consumption and labor effort decisions are made. This drop is expected to last forever. a) Do you expect this change to yield any real effect? More exactly, are real aggregate output demand (through consumption) or supply (through labor effort) affected? Explain why or why not. b) Imagine now that this household leaves a bequest to the next generation. As a result, a decision is made to hold a fixed real value of bonds (b2/P) by the end of the second period. These will be paid to the children of the household. Under these conditions, will there be any impact from the price level change over the individual consumption and labor effort choices of the representative household…

Long Question 2 of 2: given by - Consider the short run model of Chapter 13. The IS curve is Ỹ, = ā – b(R, –7) (7) where Y, is the short run output, R, is the real interest rate, ř is the long-run interest rate (or the marginal product of capital). The term ā is the aggregate demand parameter. Also, b captures how responsive investment is to changes in the real interest rate. Moreover, the Phillips curve is given by The = Tt-1 + vY; + ō (8) The term v captures changes in inflation as a response to changes in the current economic conditions, and ō captures shocks in the supply side of the economy. The monetary authority in this economy wishes to keep inflation at a certain "target" level ī. Whenever there is discrepancy between current inflation and target inflation, the central bank responds by changing the interest rate according to the rule Rt -ř = m(T; – ñī) (9) where m is a positive parameter (i.e., ñ > 0) that captures how aggressive the monetary policy is. 1 1 of 5) Derive the…

By using graphs, show and explain each of the following events as either leading to an increase or a decrease in the equilibrium interest rate? d)A sale of government securities by the TCMB f)An increase in the discount rate e)decrease in the level of aggregate output