Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 10, Problem 1AP
a)
To determine
The effect of increase in the expected future MPK, using the IS-LM model on the following:
- Current output
- The real interest rate
- Consumption
- investment
- the price level
b)
To determine
The effect of increase in the expected future MPK, using the AD-AS model on the following:
- Current output
- The real interest rate
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Assume that nominal wages are sticky and that firms determine the level of employment in the short run. Use an AD/AS diagram to model the goods market, a labor demand/supply diagram to model the labor market, and the loanable funds diagram to model the financial market. Assume that in addition to the real interest, consumption depends on current disposable income and the present value of future disposable income. Speculate what would happen in the current time period to equilibrium output, prices, real interest rates, savings (and consumption) and investment expenditures, real wages and employment as a result of: (Please include diagrams)
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Consider the following IS–LM model:
C = 100 + .25YD
I = 50 + .25Y - 1000i
G = 150
T = 100
(M/P) d = 2Y - 8000i
(M/P)s = 1000
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b. Derive the LM relation
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