If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y − 20,000r, andpotential output equals 34,000, what real interest rate must the Federal Reserve set to bring theeconomy to full employment?

Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C = 100 + 0.8(Y – Ť), 1- 100— 2000г, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M. 200 The government is currently implementing a policy G = 80, Ť = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is T° = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption function changes to C = 40 + 0.8(Y – T). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Derive the new IS curve. It should be written in the form Y = A - Bi, that is, you only need to solve for the values of A = and

the Bank resists the fixed-rate approach so that the monetary policy is more flexible. The 2020 schedule for the overnight rate is set on the first Wednesday of every month.

10 Investment Demand AS AD, (I-40) AD, (I=30) AD, (1=20) $10 20 Investment ($) 30 40 50 Real GDP ($) Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3, labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 4 percent and the goal of the Fed is full-employment output of Q, it should O increase the interest rate from 4 percent to 6 percent. decrease the interest rate from 8 percent to 4 percent. O decrease the interest rate from 8 percent to 6 percent. maintain the interest rate at 4 percent. Interest Rate (%) Price Level

What is the reason behind why the SRAS curve is upward sloping?     There are few unutilised resources     Higher price level means higher nominal wages     Higher price level means higher real wages     Lower price level will increase profit     Nominal wages and input costs are sticky in the short run

Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."

Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C = 100 + 0.8(Y – T), I = 100 – 2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M Y 200 The government is currently implementing a policy = 80, Ť = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption function changes to C = 40 + 0.8(Y – Ť). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Now suppose the government does nothing, and the CB wants to stabilise the economy with a constant r-target policy. a) The CB must react by • money supply, to b) Due to the CB's monetary policy, the LM curve c) Output, Y, changes to d) Consumtpion, C, changes to e) Private investment, I,…

Suppose the economy is in medium-run equilibrium. If the risk premium increases from 3 3 to 4%, how must the central bank change rn to maintain the existing medium-run equilibrium? The central bank needs to increase the real policy interest rate by 1 1 % in order to keep r+ x unchanged. The central bank needs to decrease the real policy interest rate by 1% in order to keep the r+x unchanged. The central bank should adjust the real policy rate until it equals 3%. O The central bank should adjust the real policy rate until it equals 4%.

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

When workers do not notice inflation has taken place they do not realize that their real wage has declined. This phenomenon is consistent with which reason for the upward slope in the SRAS curve?     mispreceptions     the interest rate effect     menu costs     the principle-agent problem