C = 100 + 0.5 - (Y –Ť)I = 500 – 1000 -rwhere Y is real output and r is the real interest rate. Government purchases and taxes areG = 500, Î= 100.The LM (money market equilibrium) curve isYwhere P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplyingM = 8000 units of money, and expected inflation is a = 0.Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initiallyat the same level (Y = 2000).Suddenly, news of a new world-beating super-vaccine raises expected inflation to = 0.05.1. Explain how the long-run values of (r, i) are determined before the vaccine news shock.2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s)due to the vaccine news shock? Explain.3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock.Appendix A Graphs for Q1.2 and Q2.3RealRealIerestIreresaRateRateIr)Tir)SavingsvesimentSavinguInvesinent(a)(b)NominalinterestRealISnterestRateRateLMLMi=rGDPGDP(e)(d)

Given; C=100+0.5(Y-T) I= 500-1000r G=500 T=100 Y=2000 LM Curve is; MP=Y5i where; P=…

C = 100 + 0.5 - (Y – T) 1 = 500 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are G=500, T = 100. The LM (money market equilibrium) curve is M Y P where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 8000 units of money, and expected inflation is xª = 0. Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially at the same level (Y = 2000). Suddenly, news of a new world-beating super-vaccine raises expected inflation to x = 0.05. 1. Explain how the long-run values of (r, i) are determined before the vaccine news shock. 2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s) due to the vaccine news shock? Explain. 3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock. Appendix A Graphs for Q1.2 and Q2.3 ir Saving nvesment Savings mesnet (b) erest Rate GDP GDP (4)

C = 100 + 0.5 - (Y – T) 1 = 500 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are G=500, T = 100. The LM (money market equilibrium) curve is M Y P where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 8000 units of money, and expected inflation is xª = 0. Assume that the long-run equilibrium level of output is Y = 2000. Short-run equilibrium output is initially at the same level (Y = 2000). Suddenly, news of a new world-beating super-vaccine raises expected inflation to x = 0.05. 1. Explain how the long-run values of (r, i) are determined before the vaccine news shock. 2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s) due to the vaccine news shock? Explain. 3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock. Appendix A Graphs for Q1.2 and Q2.3 ir Saving nvesment Savings mesnet (b) erest Rate GDP GDP (4)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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