For the next four questions, assume the economy can be described by the following set of equations: C/Y = 0.7 1/Y-0.1-4(R-F) G/Y -0.2 C+I+G=Y Also assume that = 0.02 and Y = 10. This is a complete IS model. You will be given the value of R set by monetary policy in each question. For all questions, enter the answer rounded to 1 decimal place. Suppose a demand shock (which may be positive or negative) results in a new consumption function such that C/Y=0.9. Assume the other demand functions for investment and government spending are unaltered, and that monetary policy is neutral so that R=0.02. What is the value of short-run output Ÿ in percent? Answer:

For the next four questions, assume the economy can be described by the following set of equations: C/Y = 0.7 1/Y-0.1-4(R-F) G/Y -0.2 C+I+G=Y Also assume that = 0.02 and Y = 10. This is a complete IS model. You will be given the value of R set by monetary policy in each question. For all questions, enter the answer rounded to 1 decimal place. Suppose a demand shock (which may be positive or negative) results in a new consumption function such that C/Y=0.9. Assume the other demand functions for investment and government spending are unaltered, and that monetary policy is neutral so that R=0.02. What is the value of short-run output Ÿ in percent? Answer:

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 4WNG

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