8 Monetary policy involves a change in interest rate or money supply. If the interest rate rises, planned investment falls-higher borrowing costs make fewer investment projects profitableand equilibrium output level falls. Because the level of planned aggregate expenditure (which includes planned investment) depends on the interest rate, equilibrium in the goodsmarket depends on circumstances in the money market.For each of the following situations, use an AD/AS model to describe what happens to various economic indicators in the United States in the short run. In each case assume the economy starts in long andshort-run equilibrium, and show the appropriate shifts in the AS or AD curves. Suppose that the AD and AS curves are given as:AD:P6-0.2 Y(GDP)AS:P10.15 Y(GDP)It is assumed that an 1 unit increase in Ms shifts the AD curve to the right by 0.3 unitsThe effect of a given economic change of Ms on a number of variables denoted asAA-b1 40where A are vector of variables including r, 1. Y, C, and Md. Suppose that the impact levels of the change in Ms are 0.05,2,09,08, and 09 our IYC, and Md respectivelyUsing Excel create a spreadsheet with the column headings Y AD, AS, r. I.Y.C, and Md. Let's start with no change in Ms. Fill in the spreadsheet's cells for Y=19.0 to Y-21.0 in increments of 0.1.(Note: Your answers should be rounded to the nearest hundredth Example: 12.034What is the equilibriuen GDP?12.03 5.17 55.18)20What is the equilibrium P2Now there's an increase in Ms by 50.5 (trillion). What is the impact on r due to the increase in Ms?What is the impact on I due to the increase in Ms?What is the impact on Y due to the increase in MiWhat is the impact on C due to the incase in MoWhat is the impact on Md due to the incin MIncrease, decrease, or no change) by SIncrease, decrease, or no change) by S(increase, decrease, or no change) by SDecrease, decrease or no change) by S(increase, decrease, or no change) in by

Given information Aggregate demand function P=6-0.2Y Aggregate supply function P=1+0.15Y

Monetary policy involves a change in interest rate or money supply. If the interest rate rises, planned investment falls-higher borrowing costs make lewer investment projects pro and equilibrium output level falls. Because the level of planned aggregate expenditure (which includes planned investment) depends on the interest rate, equilibrium in the goods market depends on circumstances in the money market. For each of the following situations, use an AD/AS model to describe what happens to various economic indicators in the United States in the short run. In each case assume the economy starts in long and short run equilibrium, and show the appropriate shifts in the AS or AD curves. Suppose that the AD and AS curves are given as AD P-6-0.2 (GDP) AS P1+0.15 Y(GDP) It is assumed that an 1 unit increase in Ms shifts the AD curve to the right by 0.3 units The effect of a given economic change of Ms on a number of variables is denoted as AA-b140 where Aare vector of variables including r, 1, Y, C, and Md Suppose that the impact levels of the change in Ms are 0.05,2,09,0.8, and 09 oor, 1 YC, and Md, respectively Using Excel create a spreadsheet with the column headings Y. AD, AS. r. I. Y. C, and Md. Let's start with no change in Ms. Fill in the spreadsheet's cells for Y 19.0 to Y- 21.0 in increments of 0.1. (Note. Your answers should be rounded to the nearest hundredth. Example: 12.034-12.03 5.175-5.18) What is the equilibrium GDP? 20 2 Now, there an increase in Ms by 505 (trillion). What is the impact on r due to the increase in Ms? What is the impact on I due to the increase in Ms? What is the impact on Y due to the increase in Mi What is the impact on C due to the increase in Ms? What is the inead on Md ilun to the increase in Mi Decrease, decrease, or no change) by 5, Increase, decmase, or no change) by 5 (increase, decrease, or no change) by S increase, decreese, or no change) by S (increase, decrease, or no change) in by

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter10: Kenesian Macroeconomics And Economic Instability: A Critique Of The Self Regulating Economy

Section: Chapter Questions

Problem 3WNG