Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 5AP
To determine
To Evaluate: Effects on different economic variable under different condition using IS-LM model.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Consider the following model of an economy with no international trade, and in which the price level is fixed:
C = 40 + (8/9)∙DI
I = 30
G = 30
Taxes = (1/8)∙GDP
where C is consumption demand, DI is disposable income, I is planned investment, G is government purchases, and all whole numbers are in billions of dollars.
Determine the equilibrium level of production (GDP) in this economy (show your work), and draw this equilibrium situation on a graph.
Use the multiplier to determine the change in equilibrium GDP that would result from an exogenous 16 billion dollar increase of government purchases. Then determine…
Complete the question with the two words missing:
Bernhofen and Brown 2004 tests one important implication of Ricardo's model: The value of imports minus exports at autarky prices should be [ ....... ]. This implies that the value of imports minus exports at international prices should be [ ....... ]
Use the AE model to explain and show the impact of an autonomous fall in the value of goods exported to China by Australia. (You can assume the fall is constant across all levels of real GDP). Be sure to discuss in detail, the process by which this fall is transmitted through the economy.
Now after this fall in exports is worked through, explain and show the impact of an autonomous fall (of lesser magnitude than for exports) in the value of goods imported by Australia from China. (You can assume, as before, that the size of the fall is constant across all levels of real GDP). Again, be sure to discuss in detail, the process by which this fall is transmitted through the economy.
Knowledge Booster
Similar questions
- Suppose you are given values for C = 350 + 0.6 (Y - T), Ip = 200, G = 150, G* = 170, M = 0, X = 0, T = 190, T* = 140, t = 0 Where G* and T* are the corresponding foreign counterparts to the domestic variables without an Asterix. How do I incorporate the G* and T* values when calculating short run equilibrium output? I am aware how to calculate the short run equilibrium output without the G* and T* values. So please do not answer this question if you are not going to include the G* and T* values or are not going to provide an explanation as to how to deal with these values.arrow_forwardThe economy of Ashville is currently in a macroeconomic equilibrium, as depicted by point E, in the accompanying figure. The main component of Ashville's exports consist of the raw materials that it derives from its natural resources. Suppose that the world demand for raw materials decreases sharply, resulting in a decrease in the price of raw materials throughout the world. The decrease in the world demand for raw materials, which is the major source of Ashville's exports, will the level of aggregate demand in Ashville, causing a ▼shift in the AD curve. The decrease in the world demand for raw materials, which implies a decrease in the level of factor prices, leads to in the unit cost of production in Ashville, causing a 7 shift in the AS curve. Use the three-point curve drawing tool twice to draw and label new AS and AD curves that shows the effect of this shock on Ashville's economy. Carefully follow the instructions above, and only draw the required object. The overall effect of…arrow_forward"In an economy with a high dependency on imported oil, what is the likely macroeconomic impact of a sustained and significant increase in global oil prices? A) An immediate improvement in the trade balance due to Increased export revenues. B) A decrease in inflation as higher oil prices lead to reduced consumer spending. C) An increase in the general price level and potential deterioration of the trade balance. D) Stabilization of the currency value due to increased demand for domestic currency to purchase oil.arrow_forward
- This question concerns the Ricardian Model. In autarky, the relative price of a Computer (in terms of barrels of Beer) in Country A is 25B/C. In autarky in Country B, the same relative price is 40B/C. If the two countries open to trade, which country will export Beer? Give one possible world equilibrium price of Computers once trade has been opened (there are an infinite number).arrow_forwardIn the IS-LM model, which market moves the fastest to restore general equilibrium?arrow_forwardAD/AS model. Country A is an oil exporting country. The aggregate demand and supply functions are given as below: AD : Y = 710 − 30P + 5G+3Poil AS : Y = 10 + 5P − 2Poil where Y is real GDP, P is the price level, G is the government purchases, and Poil is the world price of oil. Write down the equilibrium condition. Solve for the equilibrium value of real GDP and the price level (hint: take G and Poil as known variables). Draw the AD/AS graph to show when Poil rises in the world market, what will happen the AD and SAS curves. Explain the price level effect and the output effect due to the change of the oil price.arrow_forward
- Below are several questions about the Ricardian Model in the context of Argentina as a small open economy (Argentina takes world prices as given). Some information about Argentina: Argentina can produce two goods: manufactures and beef. The technology to produce manufactures and beef both only use labor and they have constant marginal products of labor. The marginal product of labor in manufactures is 2. The marginal product of labor in beef production is 6. a. In autarky (i.e. no international trade) what is the relative price of beef to manufactures? b. Suppose that Argentina is a "small open economy", that is it takes world prices as given and Argentina will have no impact on international supplies and prices. If the world relative price of beef to manufactures is 1/2, will international trade benefit those in Argentina? If so, what product will Argentina export? What product will it import? c. Suppose that Argentina's labor force equals 100 units. Illustrate the production…arrow_forwardThe figure to the right shows a country in pretrade equilibrium at point X, where the relative price per ton of coal is 1.2 tons of sugar (blue line). Once trade commences, suppose the world relative price of coal ends up at 2.2 tons of sugar (red line) and, as a result, this country chooses to export 2 tons of coal. Using the point drawing tool, show this country's post-trade consumption point. Carefully follow the instructions above and only draw the required object. Compared to its pretrade consumption choice, this country is now consuming A. less coal and more sugar. B. less sugar and more coal. C. more of both goods. D. less of both goods. C ← 10- 9- 8-7.8 7 6- 5- เว 4- 3- 2- 1 0- -O Sugar: Qs and Ds 3.4 0 -~ 1 2 $3 -3 3 X st 4 -LO 5 6 7 8 9 Coal: Qc & Dc 10 Qarrow_forwardWith lockdowns currently imposed across Europe and North America until mid-April, even in the best-case scenario it will take at least until mid-June for market confidence to be restored in these economies. The implication is that nearly six million workers in Bangladesh’s formal sector – which is largely manufacturing – will be without steady work for an extended period.” a) Which part of the production function do you think the issue mentioned above will affect? Draw two diagrams to show Real GDP and LRAS is affected in the long run. The government should also consider an unconditional cash transfer program for an initial period of three months at a rate of $95 per month, which corresponds to the minimum wage for the formal sector in Bangladesh. This would cost the government roughly $14 billion, or 4% of GDP. While this sort of cash transfer program always suffers from targeting issues, Bangladesh enjoys a highly sophisticated mobile financial services network, which could…arrow_forward
- Saudi Arabia is an oil exporting country. AD : Y = 710 − 30P + 5G+3Poil， AS : Y = 10 + 5P − 2Poil Y is real GDP, P is the price level, G is the government purchases, and Poil is the world price of oil. (a)Firstly, Write down the equilibrium condition. Then, what is the equilibrium value of real GDP and the price level(assume G and Poil as known variables) (b)Draw the AD/AS graph to show when Poil rises in the world market, what will happen the AD and SAS curves. (c)Explain the price level effect and the output effect due to the change of the oil price.arrow_forwardConsider the following IS-LM model: C=co +0₁ (Y-T) 1=bo+bqY - bol Z=C+I+G i=i (note: there is a bar over the righthandi) Assume c, +b, <1. (-CT+bo-b2+8) 1-0₁-b₁ Equilibrium output for this model is calculated as Y= expression using the tools in the palette. Hover over tools to see keyboard shortcuts Eg., a subscript can be created with the character) (bo-boc1 cob₁b₁G-c₁b₁T-b₂b₂0₁¹) (d₁c+d₂bo+d₂ G-d₁c₁T-d₂b₁d₂c₁d₂ / + b₁d₂1) 1-0₁-b₁ (Enter the algebraic expression for equilibrium output.) (Properly format your Equilibrium investment for this model is calculated as (Property format your expression using the tools in the palette) Let's go behind the scene in the money market. Use the equilibrium in the money market M/Pd₂Y-dal to solve for the equilibrium level of the real money supply when 1=1₁ M/P the tools in the palette) How does the real money supply vary with government spending? 1-0₁-b₁ (Enter the algebraic expression for equilibrium output) (Enter the algebraic expression for…arrow_forwardConsider a world with two countries, the US and Japan. Assuming the standard Keynesian assumptions, please answer the following questions: a) Assuming flexible exchange rates, suppose the US experiences a positive shock to their consumption function so that the entire consumption function for the US shifts upward. Give and explain two reasons why the consumption function would react in this way. b) Draw three diagrams (all pertaining to the US): on the top left, draw the Keynesian cross diagram, on the bottom left, draw an IS - LM diagram, and on bottom right, draw the FX market. Locate the initial point as point A and then show how each diagram is affected by the shock and label as point B, again, assuming flexible exchange rates. Now assume that the US and Japan are in a fixed exchange rate regime. Show how things change and label the new equilibrium, assuming fixed exchange rates as point C (Note: use the same diagrams - i.e., each diagram should have points A, B, and C). c) Explain…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education