Q.5. Do you agree with the following statements? Graphically explain. Also graphically discuss the impact of expansionary monetary and fiscal policies on the curves. a. If investment does not depend on the interest rate, the S curve is vertical. b. If money demand does not depend on income, the L curve is horizontal. c. If money demand is perfectly sensitive to the interest rate, the L curve is horizontal.

Q.5. Do you agree with the following statements? Graphically explain. Also graphically discuss the impact of expansionary monetary and fiscal policies on the curves. a. If investment does not depend on the interest rate, the S curve is vertical. b. If money demand does not depend on income, the L curve is horizontal. c. If money demand is perfectly sensitive to the interest rate, the L curve is horizontal.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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Macroeconomics Question 1) Given the following: Money supply is 1400, C = 120+0.7(Y-T). I = 200 – 10r, where r denotes the real interest rates, and T denotes the Taxation = 200, G = 400. The real money demand function (m/p = 0.1Y100r). Required: Calculate the equilibrium income and equilibrium rate of interest. II. If autonomous investment I0 increases by 300 calculate the investment multiplier (k) and analyze the impact on income (Y) and consumption (C).
The consumption function is given by: C = 200+0.75 (Y-T). The investment function is I = 200-25r. G =100 T=100 1. The money demand function is Md = Y-100r. The Money supply M is 1000 and price is 2. Derive the LM equation.2. Find the equilibrium interest r and the equilibrium level of income Y, investment and consumption3. Suppose that the government purchases (G) raised from 100 to 150. How much does the IS Curve shift? What are the new equilibrium interest r and level of income, y? If there is no crowding out effect, what is the full multiplier effect of the change in G?
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34. The difference between the two sets of graphs (Figure 1 and Figure 2) is that a) Figure 1 depicts changes in price level only, while Figure 2 shows changes in the rate of inflation. b) Figure 1 shows changes in autonomous spending, while Figure 2 shows changes in supply. c) Figure 1 depicts changes in price level only, while Figure 2 shows changes in autonomous spending (changes independent of price). d) Figure 1 shows changes in the mpc, while Figure 2 shows changes in autonomous spending.
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