Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 10, Problem 8NP
a)
To determine
To describe:
The values for the parameters
b)
To determine
To describe:
The equation of the aggregate demand curve is to be determined.
c)
To determine
To describe:
The values of the price level, P and output, Y in the state of the short run-equilibrium are to be calculated.
d)
To determine
To describe:
The values of the price level, P and output, Y in the state of the long run-equilibrium are to be calculated.
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Assume that the demand for real money balance (M/P) is M/P = 0.6Y-100i, where Y is national income
and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the
investment and saving functions. The expected inflation rate equals the rate of nominal money growth. If
Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be?
Consider an economy with constant nominal money supply M=100, constant real output Y = 100, and constant real interest rate r = 0.1. Suppose that the income
elasticity of money demand is 0.5 and the interest rate elasticity of money demand is -0.1. Also assume that expected inflation is zero and does not change (ne =
0). This implies that the nominal interest rate is equal to the real interest rate. By what percentage does the equilibrium price level differ from its initial value if
output increases to Y = 120, money supply doubles but r remains at 0.1?
O A. 90%
О В. 50%
О С. 3%
O D. 0.9%
C = 100 + 0.5 - (Y –Ť)
I = 500 – 1000 -r
where Y is real output and r is the real interest rate. Government purchases and taxes are
G = 500, Î= 100.
The LM (money market equilibrium) curve is
Y
where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying
M = 8000 units of money, and expected inflation is a = 0.
Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially
at the same level (Y = 2000).
Suddenly, news of a new world-beating super-vaccine raises expected inflation to = 0.05.
1. Explain how the long-run values of (r, i) are determined before the vaccine news shock.
2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s)
due to the vaccine news shock? Explain.
3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock.
Appendix A Graphs for Q1.2 and Q2.3
Real
Real
Ierest
Ireresa
Rate
Rate
Ir)
Tir)…
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