Below is an aggregate demand and supply diagram. " 100 Suppose initially the economy starts at point A. If the government decides to increase the tax, the economy will move from A to B in the short run and the long run. D in the short run and the long run. B in the short run and A in the long run. D in the short run and C in the long run.
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- 3. The following graph depicts a macro equilibrium. Answer the questions based on the information in the graph.(a) What is the equilibrium rate of GDP?(b) If full-employment real GDP is $1200, what problem does this economy have?(c) How large is the real GDP gap?6. The multiplier effect Consider a hypothetical economy where there are no taxes and no foreign trade, and households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is 0.75 ; the marginal propensity to save (MPS) for this economy is 0.25 ; and the multiplier for this economy is 4 Suppose investment spending in this economy increases by $100 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and, eventually, on total output and income. Hint: Be sure to enter a negative sign in front of the number if there is a decrease in consumption. Change in Investment Spending = $100 billion First Change in Consumption = billion Second Change in Consumption = 24 billion Total…Assume potential GDP is 4,000 and actual GDP is 3,000. If the consumption function is C=300+0.8Yd, how much does government expenditure need to rise by to close the output gap? (Please input the round number without any Euro symbol)
- A standard "money demand" function used by macroeconomists has the form In(m) = o +/In(GDP) +₂R Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent per year. Supposed that ₁ = 3.83 and ₂ = -0.05. What is the expected change in mif GDP increases by 10%? The value of m is expected to by approximately% (Round your response to the nearest integer) What is the expected change in m if the interest rate increases from 3% to 7%? The value of m is expected to (Round your respon by approximately% ger) increase decreaseConsider the basic setup of the Diamond-Dybvig (1983) model. Specifically, there are three periods, denoted t = 0, 1, 2, a single consumption good, and an illiquid investment opportunity that pays gross return 1 if liquidated at t = 1, or gross return 2.2 if liquidated at t = 2. There are 500 people in the economy, each endowed with 1 unit of the consumption good at t = 0. At t = 1, exactly 200 will randomly realize that they need to consume at t = 1 (the early consumers), the remaining 300 people will need to consume at t = 2 (the late consumers). The utility derived from consumption is 1 − (1/c1) 2 for early consumers, 1−(1/c2) 2 for late consumers, where the subscript denotes the time of consumption. Suppose a bank can offer an asset that is more liquid, with gross returns Rd 1 = 1.33 and Rd 2 = 1.71 (depending on the time of liquidation). (i) Calculate the bank’s profit after t = 2. In other words, what amount of funds remains at the bank once all depositors have withdrawn? Now…Assume a finite state economy with three assets whose payoff matrix is given by 30 20 50 D = 20 15 35 (a) Suppose that the asset prices are $28, $18, and $47, respectively. Is there an arbitrage opportunity in the market? (b) If the price of the third asset reduces to $46, is there an arbitrage oppor- tunity in the market?
- Answer the following question (Q#4) Consider a poor country with an under-developed economy which could invest trillions into its current capital stock – either moving “up” its current productivity “curve” (PC) or shifting to a new and higher productivity (PC) curve. Which approach is likely best for increasing the country’s living standards (Real GDP Per Person) through time? (a) A continuous build-up of the current capital stock with established technology will achieve more – capital “deepening” with more capital for each worker. (b) R&D that supports “cutting edge” invention and innovation will propel labor (Q#8) Until recently, the economy in China has grown steadily due to the deliberate emphasis on low skill – low wage factory labor methods. However, China’s economic standard of living is still comparatively low. To achieve a U.S. or German standard of living what should be done? a) China should…II. PROBLEMS Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000 Money Demand: M= 10,000 – 40,000r where money is in billions of dollars and interest rates, r, is written as a decimal (e.g., an interest rate of 10% would be written as .1 in the equation). A. Determine the equilibrium interest rate and quantity of money. B. What will happen in the money market if the interest rate is currently 10%? What is the amount of excess supply of or excess demand for money? C. Show in graph that at this interest rate (10%) there is disequilibrium in the money market. 2. Assume that a particular bank has excess reserves of Php800,000 and checkable deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank's actual reserves? 3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider the following transactions: Owners of the bank sold shares of stocks to the public (which includes owners' equity) amounting to…You are given the following information about a closed economy with no government:Consumption = 445 + 0.75Y Investment = 250 Calculate the value of the multiplier
- A new technology is developed that increases firms' expected profits. Draw a curve that shows the effect of this event. 10- Draw a point at the new equilibrium quantity of loanable funds and the new equilibrium real interest rate. 8- When a shortage or a surplus arises in the loanable funds market 6- A. the nominal interest rate is pulled to the new equilibrium level OB. the supply of loanable funds changes to return the economy to its original real interest rate 4- OC. the demand for loanable funds changes to return the economy to its original real interest rate OD. the real interest rate is pulled to the new equilibrium level 2- Real interest rate (percent per year) SLF DLF 0 Loanable funds (trillions of 2009 dollars) >>> Draw only the objects specified in the question. G. There are three possible states of economy-Boom, Growth or Recession and the returns on Ihser and Resque depend on which state will occur.T he details for these projects are as follows: State of the economy Probability of the state of the economy occurring Ihser(%) Resque(%) Boom 0.25 40 10 Growth 0.55 30 15 Recession 0.20 -10 20 (a) Calculate the expected return and standard deviation for each project (b) What are the covariance and correlation coefficient between returns of Ihser and ResqueYou are considering Project A, with the following information (Assume all statistics given are correct): Economy Probability of Rates of Return ____ Condition State Occurring Project A Market T-Bill Bad 0.2 3.0% 0.0% 4.82% Average 0.4 10.0% 8.0% 4.82% Good 0.4 15.0% 12.0% 4.82% Expected return 10.6% 8.0% 4.82% Standard deviation 5.72% 4.38% 0% Correlation Coefficient between…