Consider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8 (Y-T) I= 500 10r M P a) = 0.1Y - 35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.
Q: 5. P5: Lagrange Multiplier Method a. Consider the following utility function: U = X¹Y4, x, y> 0. Let…
A: The utility maximisation concept states that individuals and organisations attempt to maximise the…
Q: What strategies can you use to prevent over-service? Serve one drink at a time. Wait for the…
A: Introduction: Over-servicing is not the same as "going above and beyond." It's conducting work that…
Q: Why do externalities lead to inefficient outcomes? Explain why allocating property rights might help…
A: Market refers to a place where two parties, the buyers and sellers meet and interact with each other…
Q: In the Solow growth model, if the economy's actual capital stock per worker is greater than the…
A: The Solow Growth Model is an exogenous neoclassical model of economic growth that analyzes changes…
Q: How do Quits and Layoffs help Improve Labor Market Efficiency?
A: Labor market refers to the market structure where there is an interaction between the employees and…
Q: 2. Suppose we have 2 players in a first price auction. More specifically, suppose player i values…
A: Nash equilibrium in the field of game theory depicts the optimal strategy of a player where no…
Q: Question 48 of 50. Choose the response that completes the following sentence. A taxpayer may claim…
A:
Q: Discuss the difference between a change in quantity demanded and a change in demand. Describe the…
A: Demand for the good refers to the quantity of the good demanded at various prices during a period of…
Q: A machine costs Php 2,000,000. It has a salvage value of Php 500,000 at the end of its economic…
A: Depreciation is the progressive decline in an asset's value over time as a result of damage,…
Q: Examine the following diagram. With this information, what kind of curve could you derive?…
A: In economics, a budget constraint shows all the combinations of products and services that a…
Q: Based on the table, which of these currency devaluations would result in the largest proportional…
A: Answer- A Brazilian currency drop of 0.1% in value against American currency for Brazilian…
Q: 1. Higher interest rates in Malaysia attracted investor from the Philippines. How will this affect…
A: DISCLAIMER “Since you have asked multiple questions, we will solve the first question for you. If…
Q: 7. Compare the alternatives shown below on the basis of a future worth analysis, using an interest…
A: Future value (FV) is the value of a current asset at a future date based on an assumed rate of…
Q: • Draw a correctly labeled graph showing the MSC and MSB of pollution. Assume that all pollution…
A: The marginal private cost (MPC) refers to the additional cost of production a producer incurs due to…
Q: 9. The International Monetary Fund (IMF) , the international financial organization, has no…
A: Ans - No the IMF the international financial organization has no responsibility of making and…
Q: a. What is purchasing power parity and how is it related to the law of one price? b. Is it…
A: What is macroeconomic long and short run? In macroeconomic terms, the long run is the length of time…
Q: 4. Before 12th August 2005, the US Dollar (USD) was trading at 8.20 Renminbi yuan per dollar (RMB,…
A: Exchange rate is a relative price of one currency expressed in terms of another currency. In this…
Q: Assume the following demand function for tilapia and the mean values of the variables: Qd = 2.5 - 6…
A: Price elasticity of demand depicts the responsiveness of change in the quantity demanded for a good…
Q: Which of these is one effect of government price supports in the agriculture industry? The supply…
A: Price supports are government policies that aim to maintain or increase the price of a particular…
Q: In the aftermath of a hurricane bringing widespread damage to an area, home improvement stores were…
A: In an economy, the exchange of goods, services, and money is one way that the economic actors engage…
Q: Express the market demand curve in equation form. Interpret the slope and the intercept of the…
A: Market demand is the sum of all individual demands for a product bought by buyers in the…
Q: Which of the following is necessary for a firm to practice price discrimination? (A) The government…
A: Price discrimination is a competitive pricing strategy utilized by businesses and sellers. Price…
Q: Below are the costs and revenues of 2 alternatives for a machine. When the discount rate is 26.5%…
A: * SOLUTION :- Given that ,
Q: How the potential impacts of climate change and pandemics can be mitigated while alleviating poverty…
A: Due to their geographical and climatic characteristics, heavy reliance on natural resources, and…
Q: Consider a closed economy where the goods and money markets are described by the following…
A: Given, C=500+0.8(Y-T)I=500-10rMP=0.1Y-35rG=800T=200M=1000P=2
Q: If the price of cigarettes increases by 5 percent, by how much will the quantity demanded for…
A: Since you have posted a question with multiple sub-parts, we will provide the solution to the first…
Q: Which statement best describes a characteristic of a command economy? The government prohibits a…
A: Different nations have their different ways to operate economy and the functioning and…
Q: Define substitute and complementary goods. Explain it in easy word without plagiarism
A:
Q: a) Give the definition of GDP and explain what items are not included in its calculation? What is…
A: a) GDP stands for Gross Domestic Product. It is the value of all the goods and services produced…
Q: i io 0 ВО ОЕ E A Yo D C LMo ISO Y
A: IS-LM model: IS-LM model is widely used to denote the simultaneous equilibrium in product and money…
Q: Suppose that the consumers expect the price of phones to be $100 per unit next year. A news report…
A: Equilibrium price and quantity are the price and quantity levels at the point where the demand and…
Q: A machine costs Php 300,000 with a salvage value of Php 50,000 at the end of its life of 10 years.…
A: All tangible goods lose monetary worth over time owing to reasons such as wear and tear. The rate at…
Q: 14) The demand equation for a monopolist's product is p= 200 -0.98q, where p is the price per unit…
A: Profit maximisation is a process business firms undergo to ensure the best output and price levels…
Q: Which statement best describes how limited government is a key characteristic of the U.S. economy?…
A:
Q: Assume a model economy with the following parameters: C=300+0.25 Yd I=250+0.5Y-2500i G=350 T=300…
A: IS depicts equilibrium in the goods market and LM depicts equilibrium in the money market. The…
Q: What is competition policy? What are the key aims and challenges for competition policies?
A: Government policies that aim to prevent restrictions on or weakening of competition that would be…
Q: he demand and supply function for chocolate are as below: Qd= 45-4p Qs= -15+2p a) Calculate the…
A: Given Demand equation: Qd=45-4p Supply equation: Qs=-15+2p Market equilibrium occurs when the…
Q: Calculate the inflation-adjusted interest rate when the annualized inflation rate is 7% per yar and…
A: The measure of return that accounts for the inflation rate during the relevant time period is called…
Q: a) The firm sells fruit baskets in a perfectly competitive market. Calculate the firm's total cost…
A: Given: Market price = 15
Q: A company can produce 7,000 units of smartphones in a month. The fixed cost is $65,000 per month,…
A: Optimal volume is that volume that maximizes the profit of the firm. It might be less than the…
Q: Refer to the table below, which presents information on the total utility Alice derives (expressed…
A: "Consumers consume goods in order to get satisfaction or utility. Marginal utility represents…
Q: Which of the following is an expression representing the IS curve O a. 0.65Y = 2325 - 50i O b. 0.65Y…
A: IS equation is calculated by solving product market equilibrium conditions. At equilibrium, the…
Q: 1. Which expression describes the flattest money demand schedule? O a. 1=450-2(3) O b. 1-450-9(3) O…
A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: 7. If inflation is higher in the United States than in the United Kingdom, (a) the dollar should…
A: Inflation is a rise in the general price level of a country. This may lead to appreciation or…
Q: The list below describes characteristics of a type of economic system. Government regulates the…
A: An economic system is a system of allocation of resources among the different economic agents.…
Q: Compute and interpret the cross elasticity of demand for tilapia with respect to the price of…
A: Since you have posted a question with multiple sub-parts, we will provide the solution only to the…
Q: Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s…
A: A car dealership wishes to see if efficiency wages will help improve its salespeople’s…
Q: Question 12) What is the impact of banks' excess reserve holdings on the money multiplier? Why do…
A: Since you have asked multiple question, we will solve the 12th question for you. If you want any…
Q: = Y and a period . The individual faces a budget constraint in period 1 of P₁c₁ + $₁ 2 budget…
A: In economics, a budget constraint refers to all possible combinations of goods that someone can…
Q: Price Quantity Demanded $25 $20 $15 $10 $5 20 40 60 80 100 Complete the following table by…
A: Price elasticity of demand is the ratio of the percentage change in quantity demanded of a product…
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- Consider 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.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.…IS-LM model is defined via seven equations given below: C=15+0.8(Y-T) T= -25+0.25Y I=65-R G=94 X=50-10-0.1Y L=5Y-50R M=1500 C: Consumption, Y: Income, T: Tax, I: Investment, R: Interest Rate, G: Government Expenditure, X: Net Exports, L: Money Demand and M: Money Supply. Solve this system for Y and R in the matrix format by reducing it to IS and LM equations. Calculate government and trade deficits. Note that IS-LM structure is based on Y and R.
- Consider following IS-LM model: C = 200 + 0.25 · YD I = 150 + 0. 25 · Y – 1, 000 · i G = 250 T = 200 D M = 2 · Y – 8, 000 · i M = 1,600 P e) Solve for the equilibrium values of C and I! f) Solve for the equilibrium values of Y, i, C and I, if the money suppl increases to 1,840! g) Solve for the equilibrium values of Y, i, C and I, if government spending increases to 400 (the money supply is 1,600)!Consider an economy described by the following equations. Y= C + I + GC= 100 + .75 (Y - T)I= 500 - 50rG= 125T= 100 Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest. Answer the questions based on the following equations above. a. What is the value of the multiplier? b. What is the equilibrium equation for Y? Show your solution. c. Suppose the Central Bank policy is to adjust the money supply to maintain the interest rate at 4 percent, so r=4. What is the value of output? Show your solution. d. Assuming that no change in fiscal policy, what is the effect of a reduction in interest rate from 4 percent to 3 percent on equilibrium output. Show your solution. e. In this case, explain the policy that was used by the policymaker to target the aggregate demand.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.
- The 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?Consumption function C=250+0.6(Y-T) Investment I=100-20r Money demand function (M/P)=Y-20r a. Government purchases and taxes are both 100. In the accompanying diagram, graph the IS curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. b. The money supply M is 2,875 and the price level P is 5. In the accompanying diagram, graph the LM curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. c. Find the equilibrium interest rate, r, and the equilibrium level of income Y.Consider the monetary intertemporal model. Payments can be made with either credit cards or with money, and we denote the amount of transactions in real terms with credit cards as X. The bank is willing to supply credit card services as a function of Xs(q) where q is the cost per unit of credit. The money supply is given by Ms and the goods market and the labour market are as we described in the real intertemporal model Assume that the government introduces a tax on credit card services. That is, if a consumer or a firm holds a credit card balance of X, they are taxed tX where t is the tax rate. Determine the effects on the equilibriums price and the quantity of credit card services, the demand for money, and the price level
- Assume a closed economy described by an IS-LM model and illustrate with diagrams under which conditions it would be preferable to keep the interest rate constant, and under which other conditions it would instead be preferable to keep the monetary base at a given level.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 a) Get the total differentials of the above system of equations and put your answer in matrix representation. 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 i) dY/dG ii) 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=2The consumption function is given by: C = 200+0.75 (Y-T). I = 200-25r. G = T=100 The money demand function in the Malakas Country is Md = Y-100r. The Money supply M is 1000 and price is 2. For this economy graph the LM curve for ranging from 0 to 8.