Dual Mandate: Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Y a-b(R₁-F) MP: Re-F= m(*₁ — ñ) + dŸ₂ AS =-1+0+0 (a) Why does the above model represent a dual mandate? (b) Solve for the AD curve of this economy. (c) Compare the slope of the AD curve in this economy to the slope of an AD curve in an economy with a single mandate (i.e. set d=0.). Does the slope make sense given the central bank's objectives? Explain using a graph.

Dual Mandate: Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Y a-b(R₁-F) MP: Re-F= m(*₁ — ñ) + dŸ₂ AS =-1+0+0 (a) Why does the above model represent a dual mandate? (b) Solve for the AD curve of this economy. (c) Compare the slope of the AD curve in this economy to the slope of an AD curve in an economy with a single mandate (i.e. set d=0.). Does the slope make sense given the central bank's objectives? Explain using a graph.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 4SQP

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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)!
Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Y_t = a - b(R_t - r) MP: R_t - r = m(pi_t - pi) + dY_t AS: pi_t = pi_t - 1 + v Y_t + o (a) Why does the above model represent a dual mandate? (b) Solve for the AD curve of this economy. (c) Compare the slope of the AD curve in this economy to the slope of an AD curve in an economy with a single mandate (i.e. set d = 0.). Does the slope make sense given the central bank's objectives? Explain using a graph.
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.
NEED MODEL DRAWN PLEASE Draw an IS-LM model in general equilibrium. Show the effect of expansionary monetary policy in the short run, and then explain what adjustmentwill happen in a classical version of the model. Did this policy accomplishanything with regards to GDP growth
conomics Consider a consumption function of C = 0.75 (Y – T). a) If government spending increases by $300 and there is a tax hike of $500 to fund thisincrease, according to the IS-LM model will the IS curve shift up or down and byhow much?b) Considering your shift in the IS curve from part a, how should the Federal Reserveadjust the money supply if they want to keep interest rates constant?
Suppose the government cuts income taxes. Show in the IS-LM model the impact of the tax cut un- der two assumptions: (1) The government keeps interest rates constant through an accommodating monetary policy. (2) The money stock remains unchanged. Explain the difference in results
Suppose the Government wishes to reduce the budget deficit by reducing public spending while holding taxes constant. Assuming that the monetary authorities hold the money supply constant, explain why the decrease in government spending affects output more in the IS model than in the IS-LM model. note: show diagrams please
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.
Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y=8-0.5 π, that the long run aggregate supply curve is given by Yp=7, that the short run aggregate supply curve is given by π = π_expect + 0.3(Y-Yp), and that the monetary rule is given byr=1+0.3 π. Suppose the economy is suffering a decrease in the potential level of output, due to some ill-designed new regulation. According to the AD- AS model, what is more suitable to offset the subsequent decline in output, an expansionary monetary policy or an expansionary fiscal policy?
D7) IS-LM Model: Based on your understanding of the IS-LM model, graphically illustrate and explain what effect a monetary expansion will have on output, the interest rate, and investment. ( Properly)
Fiscal and Monetary Stimulus A. Create a graph of equilibrium in the IS-LM model. Show the effect of an expansionary monetary policy. Summarize your results. B. If the central bank’s goal is to maximize output, what interest rate will we expect in equilibrium? C. Starting from the equilibrium described in (B), suppose investors experience a decrease in “animal spirits.” What happens to output? Can the central bank offset this with expansionary monetary policy? D. What could fiscal authorities do to offset the shock to animal spirits described in (C)?
ONLY Question 3 Use the IS-LM model to answer this question. Suppose that the government wants to lower the budget deficit but keep output constant. Discuss what mix of monetary and fiscal policy will achieve this goal. Provide your line of reasoning and justify the answer. Attach an appropriate graph to support your answer. 3. Assume now that the government cuts taxes and runs a budget deficit while the central bank pursues a tight monetary policy. Investigate what effect should this policy mix have? Analyze what (and why) will happen to investment?