FRED 4,000 3.600 Billions of Dollars 3,200 2.800 2,400 2,000 1,600 1.200 800 400 0 -Personal Consumption Expenditures 1965 1970 an exponential trend. a linear growth trend. a complex trend. 1975 1980 1985 1990 Source: St. Louis Federal Reserve FRED database. The best type of trend that fits this data on personal consumption spending would be...

FRED 4,000 3.600 Billions of Dollars 3,200 2.800 2,400 2,000 1,600 1.200 800 400 0 -Personal Consumption Expenditures 1965 1970 an exponential trend. a linear growth trend. a complex trend. 1975 1980 1985 1990 Source: St. Louis Federal Reserve FRED database. The best type of trend that fits this data on personal consumption spending would be...

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

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

Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model

Section: Chapter Questions

Problem 1CQ

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Respond the following statements by explaining whythey are true or false. For each statement, a complete and correct explanation 1. Business cycles are the periodic peaks and troughs of the financial industry and real estate (FIRE)sector of the economy. 2. Consumption of nondurables is more volatile than GDP, that is, it has a higher standard deviation, becausepeople like to take risks, so their consumption in nondurables varies more than their income month-tomonth. 3. Investment is countercyclical because, when GDP increases, consumption increases andinvestment falls. 4. Unemployment is countercyclical because the unemployment rate is negatively correlated withGDP.
In each of the following cases, determine whether the IScurve shifts to the right or left, does not shift, or is indeterminate in the direction of shift.a. The real interest rate rises.b. The marginal propensity to consume declines.c. Financial frictions increase.d. Autonomous consumption decreases.e. Both taxes and government spending decrease by thesame amount.f. The sensitivity of net exports to changes in the realinterest rate decreases.g. The government provides tax incentives for researchand development programs for firms
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 there is an increase in the price of housing, which the central bank judges is atemporary asset price bubble. In the New Keynesian model, determine the central bank’s optimalresponse to this asset price increase, using diagrams. Discuss your results.
Suppose the economy of Ghana in 2020 was characterized by C = ¢400m + 0.75(Y-T); I = ¢400m - 20r; G = ¢200m; T = ¢200m; Ms = ¢250m/P; Md = 0.25Y - 10r a. Derive the IS and LM curve equations. Give a brief explanation as to why they are positively or negatively sloped. b. Calculate equilibrium output and interest rates (in this case assume P=1). Econ313 2020/2021 PROBLEM SET 2 Page 1 of 2 c. Suppose the government of Ghana in the second half of 2020 spent an additional ¢50m to mitigate the impact of the COVID pandemic on households and businesses and government tax revenue declined by 10% as a result of the lockdown in Ghana what will be the new equilibrium output? d. Will the policy in (c) above have an impact on interest rate? Briefly explain. e. What is the amount of the fiscal deficit incurred as a result of the government fiscal policies as pursued in (c) above?
Using the IS LM model, show how expansionary monetary and expansionary fiscal have same effect on output but opposite impact on interest rates. b. Derive the equations for IS and LM curves from the set of equations given below: C = 80+ 0.75Yd I = 300-200 i G is government expenditure G = 30 T = 30 where T= taxes Ms = 270 where Ms is money supply Md = 150+ 0.30Y – 300i Find the volume of investment at equilibrium . What would be the impact on investment if Money supply is increased to 300.
On June 5, 2003, the European Central Bank acted to decrease the short-term interest rate in Europe by half a percentage point, to 2 percent. The bank’s president at the time, Willem Duisenberg, suggested that, in the future, the bank could reduce rates further. The rate cut was made because European countries were growing very slowly or were in recession. What effect did the bank hope the action would have on the economy? Be specific. What was the hoped-for result on C, I, and Y?
What happens is the IS-MP model if most people are sent $1400 like in the Biden Rescue Plan? (Notice the answer choices all avoid saying “output gap increases/decreases” because that is confusing in real life. If the output gap goes from -4 billion to -5 billion did the gap increase or decrease? The textbook’s proposed solution is to say “more positive” or “more negative.”) output gap more positive, interest rate rises output gap more positive, interest rate does not change output gap more negative, interest rate rises output gap more negative, interest rate does not change
Consider an economy described by the following equations: Y=C+I+G C=100+.75(Y−T)C=100+.75(Y−T) I=500−50rI=500−50r G=125G=125 T=100T=100 Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest. Questions: a. What is the value of the multiplier? b. What is the equilibrium equation for Y? Show solution. c. Suppose the Central Bank policy is to adjust the money supply to maintain the interest rate at 4 percent,so r=4. What is the value of output? d. Assuming that no change in fiscal policy, what is the effect of a reduction in interest rate from 4 percent to 3 percent on equilibrium output. e. In this case, explain the policy that was used by the policymaker to target the aggregate demand.
Consider the following IS–LM model: C = 100 + .25YD I = 50 + .25Y - 1000i G = 150 T = 100 (M/P) d = 2Y - 8000i (M/P)s = 1000 a. Derive the IS relation b. Derive the LM relation c. Solve for equilibrium real output. d. Solve for the equilibrium interest rate e. Solve for the equilibrium values of C and I f. now suppose that the money supply increases to M/P = 1010. Solve for T, f. suppose that government spending increases to G = 155 What is the value of money supply? g. From what we studied, which policy, expansionary fiscal policy or expansionary monetary policy will undoubtedly increase investment.
I have to analyze, using the IS-LM model, the macroeconomiceffects of an increase in savings in the short term and its implications for long-term growth. Specifically, I have to suppose that households (consumers) lose confidence and start saving more for any level of disposable income. Could you please answer the following question (using graphs): Using the IS-LM model, show the effect of an increase in saving on production,investment and consumption, assuming that the Central Bank modifies the money supply when income changes, so that the LM curve is flat
An economy is described by the following equations: C= 2,600+ 0.8(Y-T) - 10,000r IP = 2,000-10,000r G = 1,800 NX = 0 PAE = C+1²+ GANX T = 3,000, Where the definitions of each variables are the same as our lecture notes. The real interest rate, r, expressed as a decimal, is 0.10 (that is, 10 percent). a. Find a numerical equation relating planned aggregate expenditure to output. b. Solve for short-run equilibrium output. c. Show your result graphically using the Keynesian-cross diagram. d. Now, suppose that potential output Y* equals 12,000. What real interest rate should the Fed set to bring the economy to full employment? e. Recalculate question (d) for the case in which potential output Y* equals 9,000.