Macroeconomics
Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 9, Problem 6RQ
To determine

To Explain: The concept of monetary neutrality and the viewpoint of Classical and Keynesian economists on the same in relation to the short and long runs.

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Consider the monetary intertemporal model. Payments can be made with either credit cards or with money, and we denote the amount of transactions in real terms with credit cards as X. The bank is willing to supply credit card services as a function of Xs(q) where q is the cost per unit of credit. The money supply is given by Ms and the goods market and the labour market are as we described in the real intertemporal model Assume that the government introduces a tax on credit card services. That is, if a consumer or a firm holds a credit card balance of X, they are taxed tX where t is the tax rate. Determine the effects on the equilibriums price and the quantity of credit card services, the demand for money, and the price level
Suppose that the government wants to raise investment but keep output constant. According to the IS-LM model, what mix of monetary and fiscal policy will achieve this goal? Explain your policy recommendations. Illustrate your policy bundle in the IS-LM model.
In 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 model
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