Consider the IS curve a-bR-r) If there is no demand shock and ifb=2 and X 0.5, a 1 percent increase in the real interest 1-X rate will cause short-run output to OA. fall by 4 percent. OB. fall by 2 percent. OC. fall by 0.5 percent. OD.rise by 2 percent. O E. rise by 4 percent.

Consider the IS curve a-bR-r) If there is no demand shock and ifb=2 and X 0.5, a 1 percent increase in the real interest 1-X rate will cause short-run output to OA. fall by 4 percent. OB. fall by 2 percent. OC. fall by 0.5 percent. OD.rise by 2 percent. O E. rise by 4 percent.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?
Title If someone could show me how to solve this IS-LM problem that would be very helpful. Thanks! Show tr Description If someone could show me how to solve this IS-LM problem that would be very helpful. Thanks! Show transcribed image text Desired consumption: C^d = 580 + [0.55 x (Y - T)] - 45r Desired investment: I^d = 430 - 40r Real money demand: L = 0.6 Y - 95i Full-employment output: Y = 2,210 Expected inflation pi^c : 0.03 In this economy the government always has a balanced budget, so T = G, where T is total taxes collected. a. Suppose that T = G = 150 and that M = 4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (flint: In the classical model output always equals its full-employment level.) The equations are: The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be: Output = 2,210 Real interest rate = 0.97 Consumption = 1,669.4 Investment = 391.2 Price…
c. Assume that the economy of Xenobia is at full employment. Explain how an increase in net investment will affect each of the following.i. Aggregate demandii. Long-run aggregate supplyiii. Output
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Consider the following IS-LM model: C = 200 + 0.25 YD ; I = 150 + 0.25Y – 1000i ; G = 250 ;T = 200 ; (M/P)d = 2Y – 8000i ; M/P = 1600Derive the (a) IS-relation and the (b) LM-relation.Solve for the equilibrium (c) real output and (d) interest rate.(e) Solve for the equilibrium values of C and I and verify yourequilibrium output by: Y = C + I + G(f) Now suppose that the money supply increases to M/P = 1840. Solve for Y, i, C, I and describe in words the effectsof monetary expansion.(g) Set M/P to its initial value 1600. Suppose, that governmentspending increases to G=400. Summarize the effects offiscal expansion on Y, i, and C.
In the IS curve: y = ̄a − ̄b(r − ̄r) Suppose the parameters are ̄a = 0, ̄b = 1/2, ̄r = 2% and the interest rate isinitially r = 3%. Explain what happens to the short-run output gap in each ofthe following scenarios (consider each separately): 1. The real interest rate rises from 3% to 5%;2. The real interest rate falls from 3% to 2%;3. ̄ac decreases by 1.5 percentage points;4. ̄ag increases by 2 percentage points;
a) The 1-year bond yield is currently at 0.5% and the 2-year bond yield is 1%. Inflation is expected to be 2% for the next year. i. What is the 1-year bond yield expected in one year time? ii. What is the current 1-year real interest rate? b) Consider that the central bank is deciding to raise interest rates. With the aid of an expectations modified IS-LM diagram, clearly show the impact on current output if (i) the interest rate rise is limited to 1 year and (ii) if the interest rate rise is expected to be in place for several years.
K Because in the government budget deficit increase the real interest rate, budget deficits can O A. decreases; increase OB. increases; increase OC. decreases; decrease O D. increases; decrease firm investment. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism.Answer completely and accurate answer.Rest assured, you will receive an upvote if the answer is accurate.
Desired consumption is Cd = 100 + 0.8Y - 500r - 0.5G, and desired investment isId = 100 - 500r. Real money demand is Md/P = Y - 2000i. Other variables are πe = 0.05, G = 200, = 1000, and M = 2100.a. Find the equilibrium values of the real interest rate, consumption, investment, and the price level. b. Suppose the money supply increases to 2800. Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (Assume that the expected inflation rate is unchanged
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Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?
1) The IS-LM Model a) In the IS/LM model explain what happens to equilibrium output and interest rate if governmentsimultaneously pursues expansionary fiscal policy and the central bank opts for a contractionarymonetary policy. Show with the help of a graph along with a very brief verbal explanation. b) Label the statements below as true or false and give a brief explanation for false statementsonly. i) For a given level of P (price), if M (nominal money) increases by 10%, M/P also increases by10% ii) A monetary expansion leads to a lower output and a higher interest rate. iii) Equilibrium in the financial market implies that an increase in income leads to a decrease ininterest rate making the LM curve downward sloping. c) Assume a model economy with the following parameters:C= 100 + 0.25 YD ; I= 100 + 0.5Y - 3000iG= 125 ; T= 100 ;(M/P)d = 6Y - 24000i ; (M/P)s = 4500Derive the IS and LM relation. 2) The short and medium run a) Suppose that the mark-up of goods prices over marginal…