By using graphs, show and explain each of the following events as either leading to an increase or a decrease in the equilibrium interest rate? d)A sale of government securities by the TCMB f)An increase in the discount rate e)decrease in the level of aggregate output
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By using graphs, show and explain each of the following events as either leading to an increase or a decrease in the equilibrium interest rate?
d)A sale of government securities by the TCMB
f)An increase in the discount rate
e)decrease in the level of
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- Problem 1 Suppose the system of aggregate expenditures can be described by the following relationships and parameter values. С (Y — Т) — 1200+ 0.8(Y — Т) I(r) = 100 – 3r G = 200 ; T = 200; r = 5; Ex = Im = 0 1. Suppose in response to the fall in Y, the Federal Reserve pursues a strategy to lower the real interest rate to 2 (note that it was 5 in the original setup to the problem). Identify two specific strategies or monetary policies the fed could employ to accomplish this new interest rate target.Consider an economy described by the following equations:Y = C + I + GY = 5,000G = 1,000T = 1,000C = 250 + 0.75(Y −T )I = 1,000 − 50 r. a) find the equilibrium interest rate3-) Consider an economy with the following economic functions; cd=1000+ 0.45Y - 45000r - 0.5G Id = 500 22500r Md -0.5Y - 3000 P And other variables are ² = 0.04, G=250, Y = 500, and M = 4200. a) Find the equilibrium values of the real interest rate, consumption, investment, and the price level. b) Suppose the money supply increases to 8400. Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (Assume that the expected inflation rate is unchanged)
- Similar to how the quantity demanded for a good depends on its price, the quantity of money demanded depends on the cost of holding money, or the nominal interest rate (i). In addition to this, the demand for real money balances is also a function of income (Y). Using all of this information, suppose the demand for real money balances takes on the following functional form: (M/P)dd=500 + 2Y – 9i The Fisher equation relates the nominal interest rate to the real interest rate (r) and the expected rate of inflation (Eπ) when examining ex-ante (based on forecasts or 'before the event') effects. The equation ( (M/P)dd = 500 + 2Y – 9(Eπ – r)/(M/P)dd = 500 + 2Y – 9(r – Eπ) / (M/P)dd = 500 + 2Y + 9(r + Eπ) / (M/P)dd = 500 + 2Y – 9(r + Eπ) ) is equivalent to the function given for the demand for real money balances. Suppose the central bank announces that it will increase the money supply in the future, but it does not change the money supply today. Complete the following…Consider an economy described by the following equations:Y = C + I + GY = 5,000G = 1,000T = 1,000C = 250 + 0.75(Y −T )I = 1,000 − 50 r. a)Find the new equilibrium interest rate(4)Use the graphical framework of the IS/LM model and show the impact of the following on aggregate real output and interest rate: (Note: You must provide an analysis of each diagram) (a)The implementation of a stimulus package that includes cash payment and child tax credit to families. (b)A rise in consumer and producer (optimistic) sentiment about the trajectory of the economy. (c)The Federal Reserve Bank (U.S Central Bank) institutes an expansionary monetary policy to assist in post pandemic recovery process. (d)An increase in the demand for real cash balances.
- Consider an economy that is characterized by the following equations: C = 150 + 0.65(Y - T) – 200r (Consumption) (Тахation) (Investment Demand) (Government Expenditure) (Exports) (Imports) T = 100 + 0.2Y I = 200 G = 500 - 200r X = 100 IM = 150 + 0.1(Y – T) – 100r (Money Demand) (Money Supply) L = -25 + 0.5Y - 500r M = 133,200 pSR = 120 (Short-Run Price Level) Answer each of the following questions. In your answers, be sure to state any assumptions that you impose and provide an explanation. Derive the AD and SRAS curves. Solve for the short-run equilibrium in the AD-SRAS model. Is your solution the same as in part 3 above? Why or why not? Is the fiscal multiplier in this economy larger or smaller than if the asset market were not accounted for in the model? Briefly explain. True or false? The aggregate demand curve is downward-sloping because the demand for goods and services increases as the price decreases. Briefly explain.Assume an economy operates in the keynisian ( horizontal) ranges of its aggregate supply curve curve. For each of the following changes in condition, state the direction of the effect on : 1. Aggregate demand, 2 aggregate supply 3. Price level and 4. Real gdp A decrease in government expenditure in infrastructure A severe recession occurs in a country, which has been a major importer of the nations exports. The federal government reduces business taxes. The central bank increases the cash interest rateWhen the housing bubble burst in 2007, home prices fell and this eliminated a large fraction of many households’ home equity. The most likely outcome of this large decrease in the value of households’ assets is: a rightward shift in the aggregate demand curve a rightward shift in the aggregate supply curve a leftward shift in the aggregate demand curve a leftward shift in the aggregate supply curve
- An IS curve shows: (a) that realized savings are most likely a function of interest rates, because changes in interest rates result in changes in precautionary demand for money; (b) the combinations of investments and incomes that result in the supply and demand for money being equal to one another; (c) the locus of all combinations of interest rates and incomes that will result in realized investment and realized savings being equal to one another; (d) that increases in output typically are caused by increases in interest rates.Evaluate the following statements using relevant diagrams and provide detailedexplanations. The statements describe events that might shift aggregate demand (AD),aggregate supply (AS), both or neither. Clearly label your diagrams. A) A recent economic report suggests that consumer confidence has increased.B) Apple Inc. has announced a 50% discount on its new generation iPad devices foruniversity students.C) After a prolonged acceleration in economic activity, the government raises the rateof personal income tax.D) A continuing economic expansion has drawn in many working age people (andtheir families) from neighbouring countries in search of jobs and better lives.Which of the following are likely to increase investment and as a result, aggregate demand? A) falling real interest rates B) rising real interest rates C) increased business taxes