10. An economy is described by the following equations: Desired consumption: Cd = 120 +0.5(Y-T) - 500r. Desired investment: /d = 120 - 500r. Government purchases: G= 110. Government taxes: T = 90. Real money demand: L = 0.5Y - 950r. Nominal money supply: M = 1,290. Full-employment output: Y = 500. Assume that the expected inflation rate is zero so that money demand depends on the real interest rate. Find the equation for the IS curve (report your coefficients with one decimal place): Y= Find the equation for the LM curve (report your coefficients with one decimal place): Y = r+ VP. What are the values of r, P, C, I, and L in long-run (full-employment) equilibrium? r= (report your answer to three decimal places). (report your answer to three decimal places). |= (report your answer to one decimal place). (report your answer to one decimal place). (report your answer to one decimal place). L= Beginning in the full-employment equilibrium that you have just found, suppose that the central bank changes the money supply by 60, so that now the money supply equals 1,350. In the short run, the price level is fixed at the value you found above, P = 6.523. What are the values of r, Y, C, I, and L in short-run equilibrium? r= (report your answer to three decimal places). Y= (report your answer to one decimal place). C= | = (report your answer to one decimal place). (report your answer to one decimal place). (report your answer to one decimal place). L = With the change in the money supply, what are the values of r, P, C, I, and L in long-run (full-employment) equilibrium? r= (report your answer to three decimal places). (report your answer to three decimal places). (report your answer to one decimal place). (report your answer to one decimal place). (report your answer to one decimal place). L= Compare the results for the changes in r, P, Y, C, I, and L for the three different situations (the initial full-employment equilibrium, the short-run equilibrium after the change in the money supply, and the final full-employment equilibrium after the change in the money supply). You will note that the change in the money supply causes r, Y, C, I, and L to change in the short run but only changes in the long run P = C= P= C= 1 =

10. An economy is described by the following equations: Desired consumption: Cd = 120 +0.5(Y-T) - 500r. Desired investment: /d = 120 - 500r. Government purchases: G= 110. Government taxes: T = 90. Real money demand: L = 0.5Y - 950r. Nominal money supply: M = 1,290. Full-employment output: Y = 500. Assume that the expected inflation rate is zero so that money demand depends on the real interest rate. Find the equation for the IS curve (report your coefficients with one decimal place): Y= Find the equation for the LM curve (report your coefficients with one decimal place): Y = r+ VP. What are the values of r, P, C, I, and L in long-run (full-employment) equilibrium? r= (report your answer to three decimal places). (report your answer to three decimal places). |= (report your answer to one decimal place). (report your answer to one decimal place). (report your answer to one decimal place). L= Beginning in the full-employment equilibrium that you have just found, suppose that the central bank changes the money supply by 60, so that now the money supply equals 1,350. In the short run, the price level is fixed at the value you found above, P = 6.523. What are the values of r, Y, C, I, and L in short-run equilibrium? r= (report your answer to three decimal places). Y= (report your answer to one decimal place). C= | = (report your answer to one decimal place). (report your answer to one decimal place). (report your answer to one decimal place). L = With the change in the money supply, what are the values of r, P, C, I, and L in long-run (full-employment) equilibrium? r= (report your answer to three decimal places). (report your answer to three decimal places). (report your answer to one decimal place). (report your answer to one decimal place). (report your answer to one decimal place). L= Compare the results for the changes in r, P, Y, C, I, and L for the three different situations (the initial full-employment equilibrium, the short-run equilibrium after the change in the money supply, and the final full-employment equilibrium after the change in the money supply). You will note that the change in the money supply causes r, Y, C, I, and L to change in the short run but only changes in the long run P = C= P= C= 1 =

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter20: Aggregate Demand And Supply

Section: Chapter Questions

Problem 20SQ

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