MPC = .9, Change in Income =100, Current GNP = 90, Change in Money supply = 200, reserve ratio is .2 Show using the formula what the New or Full employment GNP is and list all the Monetary (Quantitative and Qualitative) and
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A: Given : Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=100
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Given: MPC = .9, Change in Income =100, Current GNP = 90, Change in Money supply = 200, reserve ratio is .2 Show using the formula what the New or Full employment GNP is and list all the Monetary (Quantitative and Qualitative) and Fiscal policies (Discretionary and Non-Discretionary) and circle which ones change.
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- Consider an economy described by the following equations. Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=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. 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? Show your solution. b. 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. Show your solution. c. In this case, explain the policy that was used by the policymaker to target the aggregate demand.Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (a) What will this mean for the equilibrium national income?(b) What will this mean for the demand for money and to interest rates?(c) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply?(d) What effect will each of the two scenarios in (c) will have on the rate of interest rate compared with its original level?Consider an economy described by the following equations. Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=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. Question: 1. 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? 2. 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?
- Those economists who believe that monetary policy is more potent than fiscal policy argue that the: A) responsiveness of money demand to the interest rate is large. B) responsiveness of money demand to the interest rate is small. C) IS curve is nearly vertical. D) LM curve is nearly horizontal.Policymakers aim at increasing output Y, but keeping the interest rate, i, constant. Which of the following policy mix can achieve this target?All of the answers here are incorrect.A combination of increasing G and increasing the money supply.A combination of increasing G and maintaining the money supply unchanged.A combination of decreasing G and decreasing the money supply.A combination of increasing G and decreasing the money supply.111.If money demand does not depend on income, then the ______ curve is ______. A)IS; vertical B)IS; horizontal C)LM; vertical D)LM; horizontal 112.If money demand is extremely sensitive to the interest rate, then the ______ curve is ______. A)IS; vertical B)IS; horizontal C)LM; vertical D)LM; horizontal 113.If the government wants to raise investment but keep output constant, it should: A)adopt a loose monetary policy but keep fiscal policy unchanged. B)adopt a loose monetary policy and a loose fiscal policy. C)adopt a loose monetary policy and a tight fiscal policy. D)keep monetary policy unchanged but adopt a tight fiscal policy. 114.A tax cut combined with tight money, as was the case in the United States in the early 1980s, should lead to a: A)rise in the real interest rate and a fall in investment. B)fall in the real interest rate and a rise in investment. C)rise in both the real interest rate and investment. D)fall in both the real interest…
- The President is getting ready for a press conference, and needs quick advice on "closing the inflationary gap". What should the President say? a, government spending should increase or decrease? b. taxes should increase or decrease? c. discount rates and federal funds should increase or decrease? d. reserve requirement increase or decrease? e. open market operations increase or decrease?We would expect that the level of income that would equate total demand for and total supply of money would be: (a) roughly at the level of the Fed’s interest rate target; (b) lower the lower the interest rates; (c) equal to the level that would equate realized investment with realized savings; (d) higher the lower the interest rate (or lower the higher the interest rate)Expansionary fiscal policy refers to the ________ to increase real GDP. A. Federal Reserve's increasing the money supply and decreasing interest rates B. government's increasing spending and lowering taxes C. Federal Reserve's decreasing the money supply and increasing interest rates D. government's decreasing spending and raising taxes
- Assume that the prevailing interest rate in this economy is 6%. If the central bank decides to reduce the interest rate to 4% then: (a) This is contractionary monetary policy action and the price of exports would increase; (b) This is expansionary monetary policy and exports would increase; (c) This is expansionary fiscal policy and imports will increase; (d) This is contractionary monetary policy and imports will decrease.Determine whether each of the following statements is true or false, and explain why. For each true statement, discuss the impact of monetary and fiscal policy in that special case. a) If money demand does not depend on income, the LM curve is horizontal. b) If money demand is extremely sensitive to the interest rate, the LM curve is horizontal.Consider an economy described by the following equations:Y = C + I + G (1)C = 100 + 0.75(Y − T) (2)I = 500 – 50 r (3)G = 125T = 100where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 2,000.1. Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 4 percent, so r = 4. Solve for GDP. Is it greater or lower than full-employment level? How much 2. Assuming no change in monetary policy (as was in part i), what change in government purchases would restore full employment?1. Assuming no change in fiscal policy, what change in the interest rate would restore full employment?