11. A closed economy has the following parameters and functions that describe its components: • Consumption function: C = 180 +0.7(Y – T) • Desired investment function: = 120 - 18r - 0.1Y • Tax: T=400 • Government purchases of goods and services: G= 500 • Real money demand: L = 6Y - 120i • Real money supply: M/P = 5400 In money market, MIP = L. Assume the price level P= 1. Assume no inflation is expected. Build the IS-LM model and find the equilibrium level of real interest rate and real GDP.
Q: Assume that the money demand function is (M / P) ^ d = 2, 200 - 200r, where r is the interest rate…
A: MPd=2200-200rwhere;M= Money supplyP= Price levelr= Interest rateConsumption function;…
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Q: = 200 + 0.75(Y Q.4. Suppose the following functions are estimated for Pakistan economy. The…
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Q: Which of the following would indicate that the dollar amount being analyzed is money? a. M1 money…
A: Money refers to anything that accepted for transaction of goods and services.
Q: Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we…
A: LM (liquidity and money supply) manifests the developments in the money market. IS (investment and…
Q: Consider a classical economy in which the full employment rate of output is y, = 200, the money…
A: Given: Potential output (yt) = 200 Money demand (Mt / Pt)= 0.3 yt / Rt yt = 250-1000 rt Rate at…
Q: Suppose that both Friedman and Fisher are absolutely correct. Assume that over many years money…
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Q: The LM curve shows all combinations of output and interest rate consistent with equilibrium on the…
A: The IS-LM market shows the interaction of goods and money market where the IS curve is the goods…
Q: Determine the equilibrium income Y and interest rate r, given the following information about the…
A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…
Q: You are given the following information regarding a hypothetical economy: Consumption function is C=…
A: The IS curve shows the different combinations of income and interest rate at which the equilibrium…
Q: Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we…
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Q: Consumption function C=250+0.6(Y-T) Investment I=100-20r Money demand function (M/P)=Y-20r a.…
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Q: Suppose that for each one-percentage-point increase in the interest rate, the level of investment…
A: Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: Consider an economy described by the following equations. Y=C+I+G C=100+.75(Y−T) I=500−50r…
A: Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=100 where; Y= GDP C= consumption, I= investment, G=…
Q: Consider a closed economy where the goods and money markets are described by the following…
A: Given C = 200+0.9(Y-T) .... (1) I=400-15r…
Q: 5 (Y - T) I= 500 - 50r
A: Given : Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=100
Q: _____________________The Federal Reserve, the central bank of the United States, has been cutting…
A: Monetary policy refers to the policies adopted by the central bank to interfere in the economy and…
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Q: Discuss the impact of monetary and fiscal policy in each of these special cases: 4. 1.1. If…
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Q: Question 2 Assume the following model of a closed economy, with the price level P fixed at 1.0 C=…
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Q: Which of the following is true? All else equal, if government spending and tax revenue INCREASE by…
A: Correct : All else equal, if government spending and tax revenue INCREASE by the same amount in a…
Q: Question 2 Assume the following model of a closed economy, with the price level P fixed at 1.0 C =…
A: 2) Given P = 1.0 C = 0.6(Y - T) I = 500 - 50r Ms = 450 T = 200 G = 250 Md/P = 2Y - 200r. a) IS…
Q: Suppose that the central bank finds that the economy is operating as depicted in the accompanying…
A: The monetary policy is the policy of the monetary authority of the economy regarding the money…
Q: Instructions: Please read all questions carefully and make sure you understand the facts before you…
A: Since you have asked multiple questions, we will solve the first question for you. If you want you…
Q: Assume that the economy begins in long run equilibrium and the central bank increases the target…
A: As the central bank raises the target interest rate, it reduces the money supply, which raises the…
Q: Consider an economy described by the IS-LM model. You are given the following data: MPC = 0.6, C * =…
A: Goods market is in equilibrium where Y=AE And money market is in equilibrium where real money…
Q: the economy is in recession and government increases money supply do you think it will affect…
A: If the economy is in recession, it means that there are shortage of funds in the market.
Q: Using appropriate models or theories, explain the economic intuition (logic) behind the following…
A: * ANSWER :- * 5b) IS - LM Model *With increase in real income , consumption increases * With…
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A: The amount that is being charged to a borrower on any form of debt or amount given by the lender is…
Q: 1. Consider a closed economy that is characterized by the following equations: Y = C +| + G (1) C =…
A: Given Y=C+I+G ........... (1) C=500+0.75(Y-T) ......... (2) I=375-25r…
Q: Consider a closed economy where the goods and money markets are described by the following…
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Q: When real interest rates fall, the opportunity cost of current spending ________ and the consumption…
A: A real interest rate is an interest rate that has been adjusted to remove the effects of inflation.…
Q: The _____________ is inversely related to the real interest rate. Multiple Choice: LM curve quantity…
A: Real interest rate is the rate savers earn on savings and investors pay on borrowing.
Q: y describe
A: Given : Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=100
Q: Consider a closed economy where the goods and money markets are described by the following…
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Q: Determine whether each of the following statements is true or false, and explain why. For each true…
A: LM curve is a curve where money market is in equilibrium. IS curve is a curve where goods market is…
Q: Task 3 Consider a closed economy where the goods and money markets are described by the following…
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Q: Using the IS LM model, show how expansionary monetary and expansionary fiscal have same effect on…
A: Given; C = 80+ 0.75Yd I = 300-200 i G is government…
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- In a small closed economy, its aggregate demand and output are given as the equations below, Y = C + I + G; national output or GDP. C = 100 + 0.5(Y-T); consumption, marginal propensity to consume MPC = 0.5. I = 150 – 10*r; investment is a negative function of real interest rate (r as %). (M/P)d = Y – 20*r; real money demand which is adjusted by price level (inflation). G = 200; as government spending. T = 200; as tax. M = 2,400; as money supply. P = 4; the price level. (1) With the equations above, try to derive the IS curve. Tip: recall IS curve represent the relation between national output (Y) and real interest rate (r) in goods market. To derive IS curve, you need to put all components of Y together and find its connection with r. (2) Use the same equations, now try to derive the LM curve. Tip: recall LM curve represent the relation between national output (Y) and real interest rate (r) in money market. So to derive LM curve, you need to consider money supply and demand.…Consider the economy of Ghana. The consumption function is given by C = 400 + 0.8(Y - T). The investment function is I = 600 - 70r. Government purchases is 400. Assume a balanced budget. The money demand function is (M/P)d = Y - 180r. The money supply M is 3,000 and the price level P is 3. Find the equilibrium interest rate r and the equilibrium level of income Y. Suppose that government purchases are increased from 400 to What are the new equilibrium interest rate and level of income? Suppose instead that the money supply is increased from 3,000 to 3,500. What are the new equilibrium interest rate and level of income? With the initial values for monetary and fiscal policy, suppose that the price level rises from 3 to 5 What are the new equilibrium interest rate and level of income? Please solve 4Consider the economy of Ghana.The consumption function is given by C = 400 + 0.8(Y - T).The investment function is I = 600 - 70r.Government purchases is 400. Assume a balanced budget.The money demand function is (M/P)d = Y - 180r.The money supply M is 3,000 and the price level P is 3.a. Find the equilibrium interest rate r and the equilibrium level of income Y.b. Suppose that government purchases are increased from 400 to 600. What are the new equilibrium interest rate and level of income?c. Suppose instead that the money supply is increased from 3,000 to 3,500. What are the new equilibrium interest rate and level of income?d. With the initial values for monetary and fiscal policy, suppose that the price level rises from 3 to 5. What are the new equilibrium interest rate and level of income? kindly answer only sub ques (c) and (d)..
- Consider a scenario of a closed economy in the short run where price level is fixed. Assume that both taxes and money supply increase in a way that keep output constant in equilibrium (suppose that the marginal propensity to consume is less than one). Which of the following may result from the policy change? a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.Desired consumption, desired investment, and government spending in a closed economy are Cd = 360 - 200r + 0.1Yd Id = 120 - 400r G = 120 Find an equation for desired national saving, Sd in terms of output Y and the real interest rate r. What value of the real interest rate clears the goods market when Y = 550? When Y = 600? When Y = 650? Use the goods market equilibrium condition to derive the IS curve22. What could have caused the Investment function to move from I1 to I2? 23. Assuming that the Investment function moves from I1 to I2, and assuming the market rate of interest in at 15%, by how much would investment spending decrease?
- The consumption function is given by: C = 200+0.75 (Y-T). The investment function is I = 200-25r. G =100 T=100 Suppose instead that money supply is raised from 1,000 to 1,200. How much does the LM curve shift? What are the new equilibrium interest rate and level of income?Consider the following functions for consumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate? Answer all four.Suppose that the Federal funds rate rose from 3% to 6% during the year. What would you expect to happen to the rate of growth in real consumption, and in the consumption/income ratio, under the following circumstances? (A) The corporate bond rate rose from 6% to 9%. (B) The corporate bond rate remained unchanged at 6%. (C) The stock market declined 20%. (D) The stock market was unchanged. (E) The unemployment rate rose from 5% to 6%. (F) The unemployment rate was unchanged.
- Suppose the desired consumption function of Canadaland is given by C^d= 0.5 + 0.7Y - 10r - 0.1G, where Y is income, r is the real interest rate, and G is government purchases. This implies that a. Desired consumption is increasing in the real interest rate b. The marginal propensity to consume is 0.5 c. The marginal propensity to consume is 0.75 d. Desired consumption is increasing in governmental purchasesAssume the following model of a closed economy: Y = C + I + G C = 120 + .5(Y – T) I = 100 – 10r G = 75 T = 50 (M/P)d = Y – 30r Ms = 700 P = 2 Derive the equation for the IS curve, showing Y as a function of r alone. Derive the equation for the LM curve, showing Y as a function of r alone. Graph both the IS and the LM curves. What are the equilibrium level of income and equilibrium interest rate? (Y = 584, r = 7.8)Suppose that the government creates a disincentive for private saving by increasing the tax that people pay on income from holding stocks and bonds. Construct a well-labeled diagram that depicts the effect of the policy change on the real interest rate and the equilibrium quantity of investment.