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True or False with explanation;
1) With a horizontal LM curve, the amount of money in the economy is constant along the LM curve.
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- Suppose an economist believes that the price level in the economy is directly related to the money supply, or the amount of money circulating in the economy. The economist proposes the following relationship: P=A×MP=A×M • P=Price LevelP=Price Level • M=Money SupplyM=Money Supply • A=A composite of other factors, including real GDP, that change very slowly over time.A=A composite of other factors, including real GDP, that change very slowly over time. How might an economist gather empirical data to test the proposed relationship between money and the price level?Assume that following equations describe the money market of an economy Ms = 1,000 Md = .2Y - 100r Calculate the LM curve for this economy. Now assume that the money supply rises to 1,200. How much and in what direction has the LM curve shifted?Q15 Which of the following statements is consistent with a given (i.e., fixed) LM curve? Select one: a. A reduction in the interest rate causes money demand to decrease. b. A reduction in the interest rate causes investment spending to increase. c. An increase in output causes an increase in demand for goods d. An increase in output causes an increase in money demand.
- answer c and d Suppose that the following system of equations describe the macroeconomy of a hypothetical country: Y= C(y)+I(i)+G : IS or goods market M/p=L(i,y) : LM or money market b) Taking money supply and government expenditure as exogenous and the price level as fixed, determine and provide economic intuition for the signs and magnitudes of the following multipliers dY/dG and di/dG c) For a simultaneous increase in both the interest elasticity of investment and interest elasticity demand for money parameters, determine the net effect on the values of the multipliers in part b). d) For a horizontal LM curve, determine the numerical values of your answers in part b) above if: Marginal propensity to consume=5/6 Tax rate=0.25 Interest elasticity of investment=5 Interest elasticity of demand for money=50 Income elasticity of demand for money=2 answer c and d onlyIn the goods-and-services market actual inventories have started to rise above optimal inventories. What could have happened to autonomous money demand to bring this about? Explain and diagrammatically represent your answer. In doing so, be sure to explain and diagrammatically represent what happens to the rate of interest, investment, and Y. In explaining what happens to Y, be sure to fully explain the equilibrium process in the simple Keynesian modelQUESTION 26 Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. "2 "1 MS -MD 2 -MD₁ 1 P2 P₁ 1₂2 1₁ AD Refer to Figure 34-2. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the a. interest-rate effect. b. Fisher effect. c. exchange-rate effect. d. wealth effect.
- Q)If a country is currently doing well and experiencing low unemployment, is it likely to have a larger or smaller multiplier than if it were in a recession? A) Smaller B) Larger Explains it correctly and don't copy paste. Only correctly solveConsider the following macroeconomy. All amounts are in millions (m.) of $: C = 750 + 0.8 YD I = 1200 G = 150 T = 250 Calculate eqm Y and prove that I=sum of S at this equilibrium. What is meant by the “Paradox of Thrift” (POT)? Go back to the original eqm of part a. Now prove using multiplier analysis that the POT holds in this economy by assuming that the change in co is -$50 m. As part of your answer, explain “intuitively” why this paradox exists. Show what happens in the Z-Y space graph.Consider a closed economy where the goods and money markets are described by the following relationships: C 500+ 0.8 (Y-T) I= 500 10r M P a) 0.1Y35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). mpute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. e) Suppose that, instead of relying on monetary policy, the government intends to take an active role in restoring the economy to the original equilibrium by pursuing an expansionary fiscal policy. How much should government spending change by? With the help of graphs, explain very carefully, the impact of this policy on the economy. f) An…
- Assume that at a Monetary Policy Committee meeting the South African Reserve Bank decides to increase the repo rate. what is the impact of a higher repo rate be on real production (Y) and pricesAn IS curve shows: (a) that realized savings are most likely a function of interest rates, because changes in interest rates result in changes in precautionary demand for money; (b) the combinations of investments and incomes that result in the supply and demand for money being equal to one another; (c) the locus of all combinations of interest rates and incomes that will result in realized investment and realized savings being equal to one another; (d) that increases in output typically are caused by increases in interest rates.Assume the following model of the economy C = 60 +0.75(Y – T) I = 45 – 5r G = 40 and T = 40 MS 110 P = 1 (fixed) (M/P)D = 0.5Y – 5r, - where C=consumption spending, Y=income, |=investment spending, r=the interest rate, G=government spending, T=taxes. MS=the money supply, P=the price level, and (M/P)D is real money demand. (a) Write the equations for the IS and LM curves and sketch these functions. Solve for the equilibrium values of Y and r and include these values in the graph.