the right shows the economy's credit market in equilibrium. Using this graph, illustrate how the equilibrium real interest rate and the equilibrium quantity of credit would change if the following event occurs. Congress agrees to a reduction in the federal deficit, which involves a significant decrease in the amount of government borrowing. On Graph 1: 1.) Using the line drawing tool, determine the effect on the equilibrium real interest rate and the equilibrium quantity of credit. Label your curve(s) appropriately. Carefully follow the instructions above and only draw the required object(s). Real interest rate (r) S2 + Credit supply curve Credit deman curve

Imagine that a group of advisors to the president has suggested providing a tax cut for the middle class in order to stimulate the economy and reduce unemployment. The president has asked for your analysis of this proposed tax cut. Post your thoughts both as an economic scientist and economic policy advisor.  Read the scenario and, respond to the following: Describe how an economic scientist would approach the tax cut recommended by the advisors in the scenario you just read. What are some economic factors that the economic scientist would consider when crafting his or her statement on the tax cut proposed? Describe how an economic policy advisor would approach the same tax cut and provide the reasoning behind the position. Remember to think like an economist scientist and economic policy advisor when you write your post, even if it goes against your own opinions about whether a tax cut is a good idea. To guide your responses, consider the following questions: What economic…

3) In the macroeconomic model below, Y is aggregate output, C is aggregate consump- tion, Io is aggregate investment, Go is government spending, T is the total amount of taxes collected by the government, and t is income tax rate. The variables Y, C, and I are endogenous, Go, Io, and t are exogenous, and a, b, and k are parameters. Y = C + Io + Go C = a + b(YT) T=k+tY (a > 0, b = (0, 1)) (k > 0, t = (0, 1)) Calculate the determinant of the coefficient matrix A associated with this system of equations. The determinant of the coefficient matrix A is: a) |A| = 1-b+ bt b) |A| = 1-b-bt + a c) |A| = b + t d) |A| = 1+ a + b - t e) |A| = Go +b+t f) A = Iob+t g) A = Go + Io +b-t

5. The market for loanable funds and government policy The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) Supply Demand LOANABLE FUNDS (Billions of dollars) Demand Supply ?

Background: Between 2002 and 2003, the United States government increased its purchases on military goods and services by $10 billion for the war in Afghanistan. Economic theory suggests that this increase in government purchases would trigger a "multiplier effect,"causing an increase in real GDP that is greater than the $10 billion increase in government purchases. For simplicity, let's assume that there were no other spending changes in the economy. Suppose that the marginal propensity to consume in the United States is approximately 0.4, and real GDP in 2002 was $10 trillion, or $10,000 billion. When government purchases increased by $10 billion from 2002 to 2003, companies that manufactured military goods received an additional $10 billion in sales revenue, which ultimately became factor payments (income) to those who provided resources to those companies. These included the employees (who received wages and salaries), the shareholders (who received profits), those who supplied…

Please see below the spending information pertaining to the participants of a hypothetical economy. C = $10+ 0.8Y I = $20 G = $30 X-M = $10 (a) State the name of the economic agent/participant that each equation above would apply to. (b) State the assumptions underlying the equations for C and I. Why do we make these assumptions? (c) Draw a graph to illustrate the desired aggregate expenditures of an economy whose participants have the spending plans provided above. (d) Calculate the value of equilibrium output. (e) How much are consumers saving at equilibrium and how much non-consumer spending is being injected? (f) Assuming that the full-employment level of output is $300, what kind of gap exists and how large is it? Identify the gap on the graph. (g) What type of policy would you recommend to the policymakers to achieve full- employment level of output? Why? What could be some of the concerns associated with your policy proposal?

FIGURE 2. -------------- AD2 AD3 AD1 Refer to Figure 2. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3 is $40 billion. The extent of crowding out, for any particular level of the price level, is $15 billion O $35 billion O $95 billion $40 billion

INTEREST RATE (Percent) Demand LOANABLE FUNDS (Billions of dollars) Supply Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%. Demand Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to Supply Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit. This change in spending causes the government to run a budget Shift the…

2. Give a graphical confirmation of the sign of the multiplier aQ od for the linear one-commodity market model P=aQs + b (a>0, b>0) PcQ+d (c>0, d> 0)

.   Suppose  the  United  States  economy  is  repre- sented  by  the  following  equations: Z  =  C + I + G,  C  =  500 + 0.75YD,  T  =  600,  I  =  300, YD  = Y  − T ,  G = 2000   Given the  above  variables,  calculate  the  equilibrium level  of  output. assume that   government   spending   decreases   from 2000  to  1900.   What  is  the  new  equilibrium  level  of output?  How much does income change as a result of this event?  What is the multiplier for this economy?