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
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- The AS/AD (Aggregate Supply/Aggregate Demand) model is used for policymaking. Using the AS/AD model, graphically illustrate and describe the effect of an Expansionary Monetary Policy by the MPC (Monetary Policy Committee) by decreasing the repo rate.Using the IS-LM model, determine the impact on consumption (C), Investment (I), output (Y), i (nominal rate), and r (real rate) for each of the following (with graphs) A decrease in expected inflation. A decrease in expected inflation combined with a contractionary monetary policy.Using the IS-LM model, illustrate and discuss the impact of the Asian Financial Crisis on interest rates and economic activity (and thus the unemployment rate), outline the policy advice you would have given to the government under these circumstances. Include in the discussion how the slopes of the curves may affect your policy advise and the long-run impact of this policy action.
- Q1. Consider the IS-LM model. Suppose the economy of Economica is initially at the general equilibrium. Suppose further that the central bank of Economica considers the increase of the nominal money supply as a policy tool and hires you as a consultant. Explain and show graphically how an increase in the nominal money supply would affect the labor, goods, or the asset market. Explain and show graphically how an increase in the nominal money supply would affect the short-run equilibrium. Explain and show graphically how an increase in the nominal money supply would affect the general (long-run) equilibrium. The use of monetary policy is highly debated among classical and Keynesian economists. Where do they agree and where do they disagree with respect to monetary policy?Differentiate the equation of demand for real money balances inthe Keynesian model based on the LFT from the equation of demand for real money balances in the classical model based on the quantity theory of money, by providing their respective money demand equations.Assume a closed economy described by an IS-LM model and illustrate with diagrams under which conditions it would be preferable to keep the interest rate constant, and under which other conditions it would instead be preferable to keep the monetary base at a given level.
- Use the IS-LM model to describe the short-run effects of a decrease in government expenditure on the equilibrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.Using IS-LM analysis, describe the likely effects of a tightening of both monetary policy and fiscal policy on the level of real output.Use the IS-LM model to describe the short-run effects of a decrease in the money supply on the equilbrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.
- PQ 26 How, using the IS/LM/Bp model, can as increase in foreign interest rates lead to an increase in domestic interest rates?State whether the following statements are true, false, or uncertain and explain. -In the sticky-price model, if the economy is in a liquidity trap, the price level, P1, will display a tendency to fall. -Over the past 40 years, the average inflation rate was 3 per cent in country A and 22 per cent in country B. Country B must have had a lower average nominal interest rate than country A.Explain the aggregate demand curve. If we consider CPEC as an autonomous investment, use the aggregate demand curve to explain why CPEC is crucial for economic growth in Pakistan. Explain aggregate supply curve. Use the aggregate supply curve to explain the policies which government of Pakistan should adopt to increase Real GDP. According to IS-LM framework what policy should be adopted by State Bank of Pakistan to increase level of GDP/output. Give detailed explanation of your answer