Q.4. Suppose the following functions are estimated for Pakistan economy. The consumption function is G= 200 + 0.75(T. The investment function is I= 200 – 25Y wherenS Government purchases and taxes are both 100b. The100. The money supply is 1,000b and the price level Pis 2.money demand function in Pakistan is (Ma. Find the equilibrium interest rate Pand the equilibrium level of income Show in aingram.b. Suppose that the price level rises from 2 to 4. What are the new equilibrium interest rate and level of income? Show theeffect of price increase in the graph drawn in part ac. Derive the equation for the aggregate demand curve. What happens to this aggregate demand curve if tight monetarypolicy is applied? Graphically Explain.

The aggregate demand is the total value of all the goods and services produced in a country in a…

= 200 + 0.75(Y Q.4. Suppose the following functions are estimated for Pakistan economy. The consumption function is T. The investment function is I= 200 – 25 whereasGovernment purchases and taxes are both 100b. The money demand function in Pakistan is (P = Y- 100. The money supply is 1,000b and the price level Pis 2. a. Find the equilibrium interest rate Pand the equilibrium level of income Show in diagram. b. Suppose that the price level rises from 2 to 4. What are the new equilibrium interest rate and level of income? Show the effect of price increase in the graph drawn in part a c. Derive the equation for the aggregate demand curve. What happens to this aggregate demand curve if tight monetary policy is applied? Graphically Explain.

= 200 + 0.75(Y Q.4. Suppose the following functions are estimated for Pakistan economy. The consumption function is T. The investment function is I= 200 – 25 whereasGovernment purchases and taxes are both 100b. The money demand function in Pakistan is (P = Y- 100. The money supply is 1,000b and the price level Pis 2. a. Find the equilibrium interest rate Pand the equilibrium level of income Show in diagram. b. Suppose that the price level rises from 2 to 4. What are the new equilibrium interest rate and level of income? Show the effect of price increase in the graph drawn in part a c. Derive the equation for the aggregate demand curve. What happens to this aggregate demand curve if tight monetary policy is applied? Graphically Explain.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter13: Monetary Policy: Conventional And Unconventional

Section: Chapter Questions

Problem 8TY

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