According to the logic of the investment demand curve in the IS model, which of the following statements is correct? Select one or more: OaWhen FR is equal to F, monetary policy is neutral and investment as a share of output Y is at the level determined by ä,Y. O b. When R is equal to F,monetary policy is neutral and investment as a share of output Y is 0. DC. The value of F is determined the marginal product of capital, a supply side feature of the economy. Od. When R is greater than F, monetary policy is stimulating total spending.
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- In the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic efficiency. That is, ideally the central bank would like the output gap to be zero. Suppose initially that the economy is in equilibrium with a zero-output gap. (a) Suppose that there is a shift in money demand. That is, the quantity of money demanded increases for each interest rate and level of real income. How well does the central bank perform in relative to its goal? Explain using diagrams. (b) Suppose that firms expect total factor productivity to increase in the future. Repeat part (a). (c) Suppose that total factor productivity increases in the current period. Repeat part (a). (d) Explain any differences in your results in parts (a)–(c) and explain what this implies about the wisdom of following an interest rate rule for the central bank. Problem 6 assumes that…answer c and d Suppose that the following system of equations describe the macroeconomy of a hypothetical country: Y= C(y)+I(i)+G : IS or goods market M/p=L(i,y) : LM or money market b) Taking money supply and government expenditure as exogenous and the price level as fixed, determine and provide economic intuition for the signs and magnitudes of the following multipliers dY/dG and di/dG c) For a simultaneous increase in both the interest elasticity of investment and interest elasticity demand for money parameters, determine the net effect on the values of the multipliers in part b). d) For a horizontal LM curve, determine the numerical values of your answers in part b) above if: Marginal propensity to consume=5/6 Tax rate=0.25 Interest elasticity of investment=5 Interest elasticity of demand for money=50 Income elasticity of demand for money=2 answer c and d onlyAssume that the money demand function is (M / P) ^ d = 2, 200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The consumption function is given by C = 200 + 0.5(Y - T) and the investment function is I = 1.000 - 200r , where r is measured in percent , G equals 300, and T equals 200. Calculate the equilibrium level of output. Show the IS-LM equilibrium graphically.
- 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 a macroeconomic model for an open economy with the government. Consumption is given by C = 250 + bYd, where b = 0.8, Yd = (1-t)Y, and t = 0.1. Investment is given by I = 1,200 – 2,000R, and net export is given by X = 525 – 0.1Y – 500R. Assume that G = 1,200. Money demand is given by (Md/P) = 0.1283Y – 1,000R. Assume that P = 1, and the fixed money supply is given by (Ms/P) = 900. Drive the expression for the IS curve from the model. Drive the expression for the LM curve from the model. Drive the IS-LM equilibrium from the model.
- What happens is the IS-MP model if most people are sent $1400 like in the Biden Rescue Plan? (Notice the answer choices all avoid saying “output gap increases/decreases” because that is confusing in real life. If the output gap goes from -4 billion to -5 billion did the gap increase or decrease? The textbook’s proposed solution is to say “more positive” or “more negative.”) output gap more positive, interest rate rises output gap more positive, interest rate does not change output gap more negative, interest rate rises output gap more negative, interest rate does not changeThe following question relates only to the equilibrium in the goods market IN A CLOSED ECONOMY and asks you to carry out a graphical analysis using both the Keynesian cross diagram together with the IS-MP diagram. >>) Suppose after the government has implemented the reduction in taxation that the central bank wants to keep the level of investment at the same level as before the tax reduction. How can the central bank intervene in the market to achieve this goal? Explain and illustrate graphically how the central bank can keep investment at the same level as before. Is there any additional impact of the central bank intervention on output, consumption and interest rates? If so what is the impact?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.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)..
- For each of the following scenarios, assume the economy experiences an exogenous decrease in investment demand. For each case, illustrate the IS-LM-FX diagram and state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Here, we assume the policy makers’ objective is to keep output fixed at its initial valueConsider an economy in which the LM and IS functions are given below. Suppose the economy is purely classical so that yt=ý Then these equations can be condensed to LM mt - pt = y + c2Rt + εt, c2 < 0 IS Rt = r + Et(pt+1 - pt) + nt For simplicity, delete εt. Then assume that the monatery authority creates money according to MP mt = u0 + u1t + et Assume that et and nt are white noise and find the solution for pt and then for Rt.Using the IS LM model, show how expansionary monetary and expansionary fiscal have same effect on output but opposite impact on interest rates. b. Derive the equations for IS and LM curves from the set of equations given below: C = 80+ 0.75Yd I = 300-200 i G is government expenditure G = 30 T = 30 where T= taxes Ms = 270 where Ms is money supply Md = 150+ 0.30Y – 300i Find the volume of investment at equilibrium . What would be the impact on investment if Money supply is increased to 300.