Scenario 2 Suppose that the full employment line FE is Y=50. The desired consumption is Cd-20-40r+0.5Y, desired investment is Id=10-10r, the real money demand is Md=50-100r+Y. Suppose also that the government purchases are G=0, net exports NX-30-0.5Y-50r and nominal money supply is M=900. Refer to Scenario 2. Now suppose government purchases increase to 10. What will be the real interest rate and the price level in the short-run equilibrium? Group of answer choices r=12% and P=11.5 r=15% and P=12 r=15% and P=10 r=10% and P=10

Scenario 2 Suppose that the full employment line FE is Y=50. The desired consumption is Cd-20-40r+0.5Y, desired investment is Id=10-10r, the real money demand is Md=50-100r+Y. Suppose also that the government purchases are G=0, net exports NX-30-0.5Y-50r and nominal money supply is M=900. Refer to Scenario 2. Now suppose government purchases increase to 10. What will be the real interest rate and the price level in the short-run equilibrium? Group of answer choices r=12% and P=11.5 r=15% and P=12 r=15% and P=10 r=10% and P=10

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Consider an economy with the following features: Consumption, C = 130 + 0.5 Yd Income tax, T= 20 + 0.2 Y Investment, |= 200 – 60Or Government expenditure, G= 112 Real money demand, Ma/P= 50 + 0.5 Y – 600r Nominal money supply, Ms = 600 %3D Price level, P= 2 where Yd stands for disposable income, and r for the rate of interest. i. Derive the IS and LM equations. ii. Calculate the equilibrium levels of income and rate of interest
Consider the following Keynesian economy Desired consumption: c" -220 + 0.6(Y - T)-200r Desired investment: 300 - 300r Taxes: T=20 + 0.2Y Government purchases: G= 152 Net exports: NX 150 -0.08Y -500r Money demand: L0.5Y -200r Money supply: M=936 Full-employment output: Y 1000 In this economy, the real interest rate does not deviate from the foreign interest rate. a. In the general equilibrium (that is, the long run), the value of output is 1000 , the real interest rate is 0.210, consumption is 646, investment is 237, net exports are -35, and the price level is 2.044 (Enter values rountled to three decimal places for the real interest rate and price level, and enter values rounded to integers for all other values.) b. Starting from full employment, govermment purchases are increased by 58, to 210. As a result of this change, in the short run, output becomes 1019. the real interest rate becomes 0.257, the consumption becomes 640, investment becomes 223, and net exports become - 60 (Enter…
Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C = 100 + 0.8(Y –- T), I = 100 – 2000r, %3D that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is 200i The government is currently implementing a policy Ğ = 80, T = 50, %3D and the central bank (CB) is supplying M = 1000. Expected inflation is aº = 0. Suppose that pre-Covid, short-run output was equal to long-run output at Y = 1000. Fill in the following table that describes this short-run equilibrium. That is, solve for the values of the nominal interest rate, short-run price level, consumption, and investment. I' %
The consumption function of the economy of Macro-land is given by ? = 200 + 0.75(? − ?)The investment function is given by ? = 200 − 25? . Government purchases and taxes are both 100. (a) Find the equation of the IS curve (b) The money demand function in Macro-land is given byMd= ? − 100? The nominal money supply M is 1,000 and the price level is 2. Find the equation of theLM curve (c) Find the interest rate and income for which the goods and services and money marketsare simultaneously in equilibrium. (d) Suppose the government purchases are raised from 100 to 150. What are the newequilibrium interest rate and income? (e) Suppose that the money supply is raised from 1,000 to 1,200. What are the newequilibrium interest rate and national income? (f) How will fiscal expansion in the country (Macro-land) affect national income,employment, interest rate, price level and real money balance under the Keynesianaggregate supply condition? NB: Kindly answer all questions
4. Consider the following IS-LM model: Consumption:C = 200 + .25YD Investment : I = 150 + .25Y -1000i Taxes : T = 200 Government Expenditures : G = 250 Demand for Real Money Balances : (M/P)d = 2Y -8000i Money Supply : M/P = 1600 a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.) 9-C-1+G Y= 200 0.25 (Y-200) + 150 0.25 4-1000(1) +250+ Y- 200 0.254-50+1500. 25Y- 1000i+250G 93D550-1000 b. Derive the LM relation. (Hint: Write this equation with i on the left side and everything else on the right.)
An economy is described by the following equations: Desired consumption cơ = 600 + 0.8(Y- T)- 500r. Desired investment /° = 400 - 500r. Real money demand L = 0.5Y- 200i, for i> 0. Government purchases G and taxes T both equal 1,000. The initial price level P equals 2.0, and expected inflation T İs zero. Full-employment output is 8,000. Notice that the real money demand function above is defined only for positive values of the nominal interest rate. We assume that, when the nominal interest rate equals zero, people are willing to hold as much money as the central bank wishes to supply; this assumption implies that the LM curve becomes horizontal for zero values of the nominal interest rate. a. What is the corresponding real interest rate for the full-employment level of output? r =
Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C = 100 + 0.8(Y – Ť), 1- 100— 2000г, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M. 200 The government is currently implementing a policy G = 80, Ť = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is T° = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption function changes to C = 40 + 0.8(Y – T). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Derive the new IS curve. It should be written in the form Y = A - Bi, that is, you only need to solve for the values of A = and
Which of the following can hurt economic growth in the short run but help it in the long run? O population growth O improved health and nutrition O enforcement of property rights O increased educational attainment O political stability Question 31 Assume the RRR is 8% and that the deposit creation multiplier works as described in class (i.e., the "simplified" deposit creation multiplier). What will be the total of deposits in the banking system resulting from an initial deposit of $1,000? O $8,000 O $5,000. $10,000 O $1,250
Parts d-e please a) There is an inflationary gap of $500 m in the full SR model, IS-LM; and I=450 + 0.25Y-1500i; C=350+.65 YD. Calculate the required to policy and show what will happen, cet. par., in the appropriate graph. b) Assume the economy is at YFE. In the full SR model, IS-LM, show what will happen if firm confidence falls, cet. par. What will happen to the components of the goods market? Use directional arrows to show and explain all these changes. Who should do what if FE is the goal of policy? c) We are in eqm in the full SR model, IS-LM. Following a single shock (so that only one curve shifts), cet. par., we see that the nominal interest rate has fallen and Y has risen then we know with certainty that the Fed has engaged in expansionary policy. True, False, or Uncertain? Show graph in i-Y space and explain fully. d) In the full SR model, IS-LM, we know that if to falls, cet. par., then the real Money Supply will increase. True, False, Uncertain? Explain. Show…
The following equations relate to a certain economy, peruse them and answer thefollowing questions.T = 0.75Y (tax rate)L= Y - 100r (Real money demand)M = 300 (Read money supply)C = 200 + 0.25Y d (Consumption function)I = 20 - 10r (Investment function)G = 30 (government purchases) i) Derive equations fro IS and LM curvesii) Determine the rand y pair at which the two markets are clearing iii) Compute the values of C, I and L.
Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C = 100 + 0.8(Y – T), I = 100 – 2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is %3D 200i The government is currently implementing a policy Ğ = 80, T = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is aº = 0. Derive the IS curve. It should be written in the form Y = A – Bi, that is, you only need to solve for the values of A and B %3D
Consider a closed economy where the full-employment level of output is 1000. Its desired consumption and desired investment is cd = 300 - 2000r + 0.5(Y-T) and 1d = 500 - 3000r, respectively. Taxes T are 20% of output (ie, T=0.2Y). The government's G is 200. The real money demand is captured by Md/P = 200 + 0.2Y - 2000(r+n"). The nominal money supply is 300. The expected inflation n° is 4%. Which of the following is closest to the level of price (P) in the general equilibrium? O a. 1.7 cross out O b. 1.9 cross out O c. 2 cross out O d. 2.2 cross out