Dual Mandate: Suppose the central bank has a dual mandate. This implies the following IS-MP-AS model: IS: Ý = ā – b(Rµ – r) MP: R - 7 = m(nt – ñ) + d¥t AS : T = T-1+ūŸ +õ (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: Ý = ā – b(Rµ – r) MP: R - 7 = m(nt – ñ) + d¥t AS : T = T-1+ūŸ +õ (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.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Fiscal Policy: The Keynesian View And Historical Development Of Macroeconomics

Section: Chapter Questions

Problem 5CQ

See similar textbooks

Similar questions

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)
The US Government is facing major budget deficit deciding between implementing fiscal and monetary policy to boost output back to potential output. In the presence of expectations, using the IS-LM model graph the effects on the US economy from a contractionary fiscal policy? What would happen if this change is perceived as permanent by investors? Graph and explain. What would happen if the government was perceived as wasteful? Graph and explain.
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
In words, explain the key principles of the circular flow model versus theclosed-economy Keynesian cross model with autonomous investment.Critically discuss and compare the strengths and limitations of both models.
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)!
In the extended version of the classical model, based on the misperceptions theory. a. Graphically show the effect of an unanticipated increase in money supply using the AS-AD model. Make sure to label the short-run equilibrium point. b. Repeat part (a). This time, assume that the public was anticipating this increase in money supply. c. Is the short-run equilibrium in part (b) point the same as in part (a). Why or why not?
Explain the IS LM model for reduced policy rate in goods and services market and finincal market
If the level of government spending were to increase by If the level of government spending were to increase by 50 units in the IS-LM schedule model, how would this affect the position of the IS schedule? In which direction would the schedule shift and by how many units? If the level of government spending were to increase by
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?
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.
In the closed economy IS-LM model, how would the responsiveness of money demand to a change in output relate to the degree of crowding out after an increase in government spending? Select one: a. The less responsiveness money demand is to a change in output, the greater the degree of crowding out after an increase in government spending b. If money demand is high then crowding out is high. c. The more responsiveness money demand is to a change in output, the greater the degree of crowding out after an increase in government spending d. The responsiveness of money demand to a change in output has no bearing on the degree of crowding out after an increase in government spending
Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms. a. How does the misperception theory work? b. Which of the three markets is first affected (labor, goods, or asset market)? Explain and show graphically how this market is affected by an unanticipated increase in the nominal money supply. c. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the short-run equilibrium. d. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the long-run (general) equilibrium.