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- In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.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.…What, according to Keynes, are the normal mechanisms for ensuring full- employment equilibrium given an increase in money demand? Discuss how each of them helps ensure full employment.
- In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. a) According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market. b) (Continued from part a) As time passes (i.e., in the very long run which will be 10-15 years from now), what happens to the stocks of productive inputs in Canada? How would this change in the stocks of productive inputs affect the equilibrium levels of output and real interest rate in Canada? What happens to the real wage in Canada? Explain, and support your answer by a new set of loanable funds market and one for the labour market diagramsI have to analyze, using the IS-LM model, the macroeconomiceffects of an increase in savings in the short term and its implications for long-term growth. Specifically, I have to suppose that households (consumers) lose confidence and start saving more for any level of disposable income. Could you please answer the following question (using graphs): Using the IS-LM model, show the effect of an increase in saving on production,investment and consumption, assuming that the Central Bank modifies the money supply when income changes, so that the LM curve is flatBased on the IS-LM model, show the graph and explain the effects on the equilibrium levels of income and interest rate when the Central Bank purchases government securities from the public.
- The following equations describe a Keynesian model of a closed economy: C = 500 - 0.5(Y - T) - 100r I = 350 - 100r L = 0.5Y - 200i πe = 0.05 G = T = 200 Y = 1850 M = 3560 a. Find the full-employment equilibrium values of the real interest rate, consumption, investment, and the price level. b. Suppose government purchases decline to 175, with no change in taxes. What happens to the real interest rate, output, consumption, and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate, consumption, investment, and the price level? c. Suppose instead that government purchases rise to 225, with no change in taxes, starting from the equilibrium in part (a). What happens to the real interest rate, output, consumption, and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate, consumption, investment, and…Assume that a closed economy finds that households have become wealthier. Which one of the following options correctly describes the effects of this increase in wealth on the equilibrium interest rate and level of output in the IS-LM model? (a) Equilibrium output and income will decrease as the interest rate increases; (b) Equilibrium output and income levels will increase and the interest rate will remained unchanged; (c) Equilibrium output and income will decrease but the interest rate will remain unchanged; (d) Equilibrium output and income will increase as the interest rate decreases.In the goods-and-services market actual inventories have started to rise above optimal inventories. What could have happened to autonomous money demand to bring this about? Explain and diagrammatically represent your answer. In doing so, be sure to explain and diagrammatically represent what happens to the rate of interest, investment, and Y. In explaining what happens to Y, be sure to fully explain the equilibrium process in the simple Keynesian model
- In the IS-LM model, if there is expansionary fiscal policy and expansionary monetary policy at the same time, then output ____ and the interest rate ____..If the statement is false or uncertain, please correct the statement to make it true. If the statement is true, please explain your answer briefly. In a closed economy, adjustment in the nominal interest rate causes the simultaneous equilibrium in the product market and in the financial market.I have to analyze, using the IS-LM model, the macroeconomic effects of an increase in savings in the short term and its implications for long-term growth. Specifically, I have to suppose that households (consumers) lose confidence and start saving more for any level of disposable income. Can you please help me answering the following question (using graphs too): "Using the IS-LM model, show the effect of an increase in saving on production,investment and consumption, assuming that the central bank does not modify themoney supply when income changes, that is, the LM curve has a positive slope"