Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 11, Problem 3E
(a)
To determine
The short-run effect of the temporary investment tax credit on GDP.
(b)
To determine
The short-run effect of an unexpected increase in the demand for U.S goods.
(c)
To determine
The short-run effect of the increase in New Zealand products to the U.S.
(d)
To determine
The short-run effect of a 20 percent fall in housing prices.
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Students have asked these similar questions
Consider the following changes in the macroeconomy and show how to think about them using the IS curve. Explain how and why GDP is affected in the short run (assuming the real interest rate is constant).
The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income.
A booming economy in Europe this year leads to an unexpected increase in demand by European consumers for US goods.
US consumers suddenly love all things made in Brazil and sharply increase their imports from that country.
A housing bubble bursts so that housing prices fall by 20% and new home sales drop sharply.
* 2. Analyzing macroeconomic events with the IS curve (I): Consider the following
changes in the macroeconomy. Show how to think about them using the IS
curve, and explain how and why GDP is affected in the short run.
(a) The Federal Reserve undertakes policy actions that have the effect of
lowering the real interest rate below the marginal product of capital. (We
will learn how this can occur in Chapter 12.)
(b) Consumers become pessimistic about the state of the economy and future
productivity growth.
(c) Improvements in information technology increase productivity and there-
fore increase the marginal product of capital.um noiqmnos d
Suppose you are given the following information about an economy:
Short run Aggregate Supply:
SRAS = Y = 5000r+ 14,400
Long run Aggregate Supply:
Aggregate Demand:
Investment Spending:
Consumption Spending:
Government Spending:
Net Exports (eX – iM):
LRAS = Y* = 25,000
AD = Y=C+I+G+NX_
I = 4000 – 250r
C = 1000 +0.75(Y – T)
G = 2000
NX = 500
Taxes – Transfers:
T = 2400
Monetary Policy:
Money Demand:
Money Market equilibrium:
Fisher equation:
where i is the nominal interest rate (i.e. when the interest rate is 7%, it means i= 7)
r = 2 n
м 3 20,000- 2000i
M$ = MD
i = r+T
e. Find the short run equilibrium level of real GDP (Y), and inflation rate (t), in the short run. What is the output gap
in the economy? Is it an expansionary or recessionary gap?
Chapter 11 Solutions
Macroeconomics (Fourth Edition)
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