C = 50 + 0.9 · (Y – T)I = 50 – 1000 -rwhere Y is real output and r is the real interest rate. Government purchases and taxes areG = 500, T = 500.The money market equilibrium curve-or LM curve-isM YP 5iwhere P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplyingM = 10000 units of money, and expected inflation is aº = 0.05. The long-run aggregate supply (LRAS) isY, = 1000.Suddenly, there is a climate shock that changes the marginal propensity to consume (MPC), and theconsumption function changes toC' = 50 + 0.8 - (Y – T).1. Explain how the long-run values of (r, i) are determined before the climate shock.2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s)due to the climate shock? Explain.3. Explain how the long-run values of (Y, P) are determined before the climate shock. Appendix A Graphs for Q1.2 and Q2.2RealInterestRealInterestRateRateI(r)I(r)I(r)"Savings/InvestmentSavings/Investment(a)(b)RealNominalInterestRateIS'ISInterestRateIS'ISLMLMi=ri'GDPGDPY' Y(d)Y'(c)

Given Information C=100+0.5(Y-T)I= 500-1000rG=500T=100Y=2000 LM Curve is;…

I = 50 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are Ĝ = 500, Î= 500. The money market equilibrium curve-or LM curve-is where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplyin M = 10000 units of money, and expected inflation is xª = 0.05. The long-run aggregate supply (LRAS) Y, = 1000. Suddenly, there is a climate shock that changes the marginal propensity to consume (MPC), and tl consumption function changes to C' = 50 +0.8 - (Y – T).

I = 50 – 1000 -r where Y is real output and r is the real interest rate. Government purchases and taxes are Ĝ = 500, Î= 500. The money market equilibrium curve-or LM curve-is where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplyin M = 10000 units of money, and expected inflation is xª = 0.05. The long-run aggregate supply (LRAS) Y, = 1000. Suddenly, there is a climate shock that changes the marginal propensity to consume (MPC), and tl consumption function changes to C' = 50 +0.8 - (Y – T).

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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