Consider the New Keynesian model where there is a representative household that con- sumes, supplies labor, accumulates bonds and accumulates money. The household gets utility from holding real balances. Its problem is: C 1-0 1+ø Eo + In 1+0 Bt max Ct,Nt,Bt,Mt t=0 s.t. PC; + Q,B + M – M-1 < B-1 + W,N – PT, Variables: Ct: consumption; N: labor; B: stock of bonds; P: price of goods; M: stock of 1 price of bonds and the implied vield is 1+i: W.: wage: T: lump-sum tax money: O.
Q: The consumption function of the economy of Macro-land is given by ? = 200 + 0.75(? − ?) The…
A: Hi, according to our guidelines we allowed to answer only one question with three sub divisions in a…
Q: Consider the following extended classical economy (in which the misperceptions theory holds): AD Y=…
A: Answers A) M=1000 AD:Y=300+10*1000/p=300+10,000/p SRAS:Y=800+p-20=780+p Short run equilibrium at…
Q: Q2. Consider a consumer with the following Marshallian demand: 21 -and y = I X = Px +2p, Px +2p,…
A: Consumer with following Marshallian demand:- x=IPx+2Py y=2IPx+2Py
Q: According to classical economists
A: The fundamental conviction of classical economics matters is that markets function admirably and…
Q: Q.1.12 Which one of the following statements about the simple Keynesian macroeconomic model is…
A: Here correct statement is “the model can be used to study inflation”
Q: Most rms borrow money to use for investment. If these rms cannot get loans, they have to reduce…
A: The IS curve shows the different combinations of income and interest rate at which the equilibrium…
Q: Starting from general equilibrium, what would be the long-run effects of a simultaneous reduction in…
A: We can take a standard IS-LM framework to understand the economic activities. In an equilibrium,…
Q: In the New Keynesian model, how should the central bank change its target interest rate in response…
A: * ANSWER :-
Q: C=100+.75(Y−T)
A: Given : Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=100
Q: Consider the economy of Hicksonia a) The consumption function is given by: C=300+0.6(Y-T). The…
A: “Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…
Q: Money demand and money supply determine the rate of interest in the Keynesian model. O True O False
A: Ok an economy money demand is made by the people of a country to make economic transactions and…
Q: Consider the economy of Banana. a. The consumption function is given by C = 200 + 0.75(Y − T), The…
A: NOTE: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…
Q: Consider an economy in which the LM and IS functions are given below. Suppose the economy is purely…
A: Answer - Given in the question - Equations of IS-LM and MP LM - mt - pt = y + c2Rt + εt,…
Q: A Keynesian economy is described by the following equations. Desired consumption equation: Cd = 300…
A:
Q: Which of the following is not true for the IS/LM model? O Keynesian demand-side model O Fixed price,…
A:
Q: Suppose the world real interest rate r ∗ = 3, inflation expectation π e = 2, money supply is 1000,…
A: LM curve shows the points of i and Y that yield equilibrium in money market. It is a positively…
Q: In the full SR model, IS-LM, we know that if to falls, cet. par., then the real Money Supply will…
A: From the given information we know that this is expansionary fiscal policy i.e. reduction in taxes…
Q: Let's assume that in the Asgardian's model of the economy the natural rate of interest is denoted as…
A: Asgardian's model of economy This is nothing but the theory which takes the society's benefits and…
Q: Explain the Indirect Keynesian Transmission mechanism if the money supply increases
A: As per the theory of Keynes, the indirect transmission mechanism states that when the supply of…
Q: Let's assume that in the Asgardian's model of the economy the natural rate of interest is denoted as…
A: Aggregate Demand Aggregate demand refers to the overall demand in the economy for output. It is the…
Q: Consider the following short-run IS-LM model. Assume the central bank targets the nominal…
A: Since you posted multiple subparts, we will provide you the answer of first three subparts. If you…
Q: n the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate…
A: "Since you have posted a question with multiple sub -parts. We will solve firth three sub-parts…
Q: Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 -…
A: Macroeconomic equilibrium refers to the situation where the aggregate demand in the economy is…
Q: 20. According Neoclassical view how much is the money ? multiplied if the reserve requirement is 5%?…
A: Neoclassical theory is a broad theory that focus supply and demand is the main components behind the…
Q: Q.6 In Keynesian cross model (Y=C(Y“)+I(r)+G) an increase in the money supply which causes a…
A: Keynesian cross model explains how the with a change in the level of aggregate expenditure the…
Q: The school of thought that emphasizes the natural tendency for an economy to move toward a…
A: The economics as a study is a very vast area of study, because economics is found in every aspect of…
Q: Consider the IS curve where consumption depends on the present discounted value of income. Suppose…
A: A) Investment savings curve is poularly known as IS curve. It shows different combinations of…
Q: Please solve all the three Multiple choice questions mentioned below: 1. Question in the image: a.…
A: Since you have asked multiple questions, we will solve first question for you. If you want any…
Q: Assume the following information for an economy: Natural level of output = $190b…
A: The actual equilibrium level of output for this economy: actual equilibrium level of output (Y) =…
Q: Q.1 Monetarists claim that None of the options stabilisation policies do not work. money supply…
A: "Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: The following equations describe a Keynesian model of a closed economy: C = 500 - 0.5(Y -…
A: C = 500 - 0.5(Y - T) - 100r I = 350 - 100r L = 0.5Y - 200i πe = 0.05 G = T = 200 Y = 1850 M = 3560
Q: Consider a closed Keynesian economy. Draw an IS-LM diagram and mark the initial point as "0". Then:…
A: IS curve is the locus of all those combinations of interest rate and output where the goods market…
Q: Suppose that the following system of equations describe the macroeconomy of a hypothetical country:…
A: IS-LM model shows the short term equilibrium condition in both goods and money market simultaneously…
Q: Consider an economy in which the LM and IS functions are given below. Suppose the economy is purely…
A: Answer - Given in the question - LM - mt - pt = y + c2Rt + εt, c2 < 0 mt - pt = y +…
Q: Assume that goods market is always in equilibrium but money market clear sluggishly. Trace out the…
A: Goods market is shown by the IS curve and money market is shown by the LM curve.
Q: According to the logic of the investment demand curve in the IS model, which of the following…
A: The correct answer is given in the second step.
Q: Consider the impact of thriftiness in the Keynesian Cross Model. Suppose the consumption function is…
A: J M Keynes developed the Keynesian economic model during the 1930s. The model is an attempt to…
Q: Explain whether each of the following statements is true or false : A). An increase in the ratio of…
A: The multiplier of money is described as a situation in which an initial deposit can lead to a final…
Q: This question involves the use of the IS-LM and AS-AD models. A. Suppose that, ceteris paribus, the…
A: IS-LM model explains the relationship between the rate of interest and the asset market in the…
Q: emand. Total factor productivity is expected to decrease in the future. Total factor productivity…
A: 1.It is important to establish the relationship between interest rate and demand for money.The…
Q: In the Neoclassical-Keynesian Synthesis ASAD model, let us suppose that the interest rate has no…
A: Neoclassical-Keynesian Synthesis: Paul Samuelson appears to have developed the phrase "neoclassical…
Q: In the Keynesian theory, money wages do not fall in response to a decrease in aggregate deman…
A: In keynesian theory money wage decrease as aggregate demand decreases.
Q: Consider the following Keynesian economy: Desired consumption: c° = 220 +0,6(Y - T)- 200r Desired…
A: In the general equilibrium, that is in the long run equilibrium, output remains at full employment…
Q: Consider the following IS–LM model: C = 100 + .25YD I = 50 + .25Y - 1000i G = 150 T = 100…
A: Since you have posted a question with multiple sub-parts, we will solve first three sub parts for…
Q: When workers do not notice inflation has taken place they do not realize that their real wage has…
A: Answer to the question is as follows:
Q: In the extended version of the classical model, based on the misperceptions theory. a. Graphically…
A: Misperception theory refers to the theory that discusses how an unexpected rise in the prices of…
Q: Consider the following Keynesian economy Desired consumption: c" -220 + 0.6(Y - T)-200r Desired…
A: Given: The consumption level is as: Cd = 220 + 0.6Y - T - 200r Desired investment: Id = 300 - 300r…
Step by step
Solved in 2 steps
- Most rms borrow money to use for investment. If these rms cannot get loans, they have to reduce their level of investment. Suppose there is a credit crunch like the one experience by many Korean rms in 1997 Asian nancial crisis. The credit crunch limits the amount of money available to be loaned. Hence, rms cannot borrow as much as they would optimally chose to. As a result, the investment schedule shifts to the left. (a) In the Keynesian model, what happens to output and interest rate in the short run? What would happen in the long run? (b) In the Keynesian model, what monetary policy can the BOK (central bank) follow to counter the recession caused by credit crunch? (That is, the BOK wants to achieve the same level of output as before the credit crunch). What would happen in the long run? (c) How would your answers in (a) and (b) be dierent if the Classical model applied?A Keynesian economy is described by the following equations. Desired consumption equation: Cd = 300 + 0.4(Y – T) – 300r Desired investment equation: I d = 300 – 300r Government purchases G = 317 Taxes T = 305 Money demand equation L = 0.4Y – 600(r + πe ) The nominal money supply M = 4428 The expected rate of inflation, πe = 0.03 Full-employment values of output Y = 1305 2 (a) Calculate the values of the real interest rate, the price level, consumption, and investment for the economy in general equilibrium. (b) Now suppose government purchases increase to 347 with no change in taxes. What will be the real interest rate, the price level, output, consumption, and investment in the short run? What will be the real interest rate, the price level, output, consumption, and investment in the long run?suppose a Keynesian macroeconomic model is characterized with the following equations: Y = C + I + G Goods markets C = C = 320 + 0.8YdYd = Y − TI = 40 − 40rG = 80T = 50 Money marketsMoney demand:(M/P)d = 500 + 0.8 − rMoney supply: MSP = 800Derive IS and LM equations and derive equilibrium income level and interest rate.
- a) Which of the following would a classical macroeconomist disagree with? The interest rate is the price of time or productivity of capital Nominals effect nominals Recessions are caused by an over production of all economic goods Prices should be as flexible as possible Effective demand comes from prior supply b) Which of the following is true? The expected costs and returns for holding money are important for estimating the demand of real cash balances The difference between nominal GNP and real GNP is that nominal GNP has been adjusted by a price deflator to account for changes in the value of money (inflation) People in Group 1 receive the inflation tax on their cash-balances Interest is the price of money The real money supply is equal to the nominal money supply divided by the real money supplya) Use an appropriate diagram, to explain how the Permanent Income Theory of Consumption reconciles the results of cross-section and time series estimate of the Keynesian aggregate consumption function. (b) With the help of a diagram, explain the effect of an increase in nominal income on interest rate.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…
- Suppose that in Macroland the consumption and the investment have a negative relationship withthe real interest rate and positive relationship with Y. The Central Bank of the country targets acertain nominal interest rate and lets the money supply adjust in order to reach that interest rate.a. Draw a graph of the IS-LM model in this situation.b. Suppose that the Central Bank announces an increase of the interest rate in the future.Represent graphically the initial position of IS-LM curves. Then, show the IS-LM curves of thefuture, after the announced increase in the interest rate is implemented. (Assume that the ISis constant.).c. Suppose that agents today take into consideration the resulting income of the future whendeciding the amount of consumption and investment. Show what happens to the IS-LMcurves today after the announcement of the CB (tip: the CB is NOT increasing the nominalinterest rate today).d. The government decides to step in and avoid any deviation of Y from the initial…1. Which of the following is not an assumption of the simple Keynesian ? (a).We are in the short run (b). Prices are constant (c).Output is demand -determine (d). Output is supply -determine (e). Aggregate output is equals planned expenditure 3. Equilibrium in the market for bank reserves determine. 4. The consumer prices index (CPS) baskets of goods typically consumed in period 2 goods .COURSE: MACROECONOMICS - IS-LM MODEL Analyze and plot IN DETAIL the effect on the money market caused by an increase in the sensitivity of money demand to the level of income (i.e. "k*Y" in the equation of the money Market L = k*Y - h*i). Then, explain and plot how the equilibrium changes in the IS-LM model.
- Time remaining: 00 :09 :06 Economics If there is an inflationary gap, what should the Fed do? Explain, provide name, and show in i-M space. Consider the following macroeconomy, with fixed prices (all amounts are in millions of $): YFE = 7000 C = 40 + 0.9 YD I = 500 G = 250 T = 40 a. Calculate eqm Y in this model and then graph it in the Keynesian-cross diagram. Indicate and provide the name and size of the gap, if any. b. Prove that the appropriate relationship between I and various types of Savings holds at eqm. c. What two different policies could Congress enact? You must calculate the exact changes in the appropriate variables and provide the appropriate name(s) for the(se) policies. Graph each of these policies in the Keynesian-cross diagram. Show what your policies would do, if anything, in the money-market diagram, (in i- M space) cet. par. Indicate the initial disequilibrium and explain what will happen and why. d. Go back to the original eqm in part a. Now…Suppose the Biden administration permanently increases government purchases. (You shouldassume that the economy is at Y* before the increase.)a. What will be the impact on the economy’s normal real interest rate (r*) and normalinvestment (I*)? Explain with the help the long-run savings and investment diagramDesired 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