IS curve: r = 30.30-0.0015Y LM curve: =Y - 500(r + n°) SRAS curve: Y = Y + 100(P – P°) The nominal money supply is M = 59, 400, expected inflation is = 0.10, and full employment output is Y = 20,000. a) If the economy begins in general equilibrium, what are the equilibrium values of the price level, output and the real interest rate? b) if the expected price level is the price level your found in part (a), what happens to the price level, output, and the real interest rate in the short run if there is an unanticipated decrease in the nominal money supply to 49281.25? - %3D

IS curve: r = 30.30-0.0015Y LM curve: =Y - 500(r + n°) SRAS curve: Y = Y + 100(P – P°) The nominal money supply is M = 59, 400, expected inflation is = 0.10, and full employment output is Y = 20,000. a) If the economy begins in general equilibrium, what are the equilibrium values of the price level, output and the real interest rate? b) if the expected price level is the price level your found in part (a), what happens to the price level, output, and the real interest rate in the short run if there is an unanticipated decrease in the nominal money supply to 49281.25? - %3D

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
QUESTION 2. Consider the following equations: MP Curve: r = 1 + 0.5 * TT IS Curve: Y = 1400 300r, Where r is the real interest rate in percentage points, Y is the real GDP in billions, and it is the inflation rate in percentage points. a) Using the MP and IS curves equations, obtain the Aggregate Demand equation. Show your work.
Price level in January 2051 is 98.1
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1- Consider the following IS-LM model: I= 150 + 25Y - 1000i, (M/P 2Y 8000i, G=250, T= 200 C=200 + 25YD. NX 0, M/P = 1600. a) Derive the IS relation b) Derive the LM relation. c) Solve for equilibrium real output (Y*). d) Solve for the equilibrium interest rate (i*) e) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. ) Now suppose that the money supply increases to M/P =1,840. Solve for Y, i c, and T, and describe in words the effects of an expansionary monetary policy. g) Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, 1. C. h) The expansionary fiscal policy in part (g) have resulted in large budget deficit (T= G = 200 – 400 = -200). Suggest a policy mix to decrease fiscal deficit to achieve a balanced budget (T = G = 0). b(Ctrl) - 立
1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
Consider a closed economy, where wages are sticky in the short run. The consumption function is C = co+c₁(Y-T), where the marginal propensity to consume c₁ is equal to 0.8. Initially the economy is in equilibrium at Y = Y* and P = Pº, where Pe is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $200. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn't change at all, enter 0 as your answer. 10. By how much will output Y change in the short run? 11. By how much will consumption C change in the short run? 12. By how much will investment I change in the short run? 13. By how much will output Y change (compared to its initial level before the change in G) in the long run, after wage…
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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
True or False: An increase in the price level will shift the LM curve to the right.
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)?