Refer to the following figure when answering the following questions. Figure 11.3: IS Curve 1S3 R₂ IS4 IS₂ * IS₁ Consider Figure 11.3. If investment is interest rate insensitive, the economy would be characterized by: IS3. O IS₂. O Not enough information is given. O IS₁. O IS 4.
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- During and in the aftermath of the financial crisis of2007–2009, planned investment fell substantiallydespite significant decreases in the real interest rate.What factors related to the planned investment functioncould explain this?An economy is described by the following equations: C= 2,600+ 0.8(Y-T) - 10,000r IP = 2,000-10,000r G = 1,800 NX = 0 PAE = C+1²+ GANX T = 3,000, Where the definitions of each variables are the same as our lecture notes. The real interest rate, r, expressed as a decimal, is 0.10 (that is, 10 percent). a. Find a numerical equation relating planned aggregate expenditure to output. b. Solve for short-run equilibrium output. c. Show your result graphically using the Keynesian-cross diagram. d. Now, suppose that potential output Y* equals 12,000. What real interest rate should the Fed set to bring the economy to full employment? e. Recalculate question (d) for the case in which potential output Y* equals 9,000.If the value of marginal propensity to save is 0.2 determine the exact value of investment multiplier.
- Suppose the Biden administration permanently increases government purchases. (You shouldassume that the economy is at Y* before the increase.)a. What will be the impact on the economy’s normal real interest rate (r*) and normalinvestment (I*)? Explain with the help the long-run savings and investment diagramThe propensity to consume tells us by how much consumption changes for a given change in disposable income. To analyze this fact, follow these steps: 5- Go to the Federal Reserve Economic Data (FRED) https://fred.stlouisfed.org/. download the series A067RX1A020NBEA and PCECCA since 1999. Make sure all series are in real terms and in comparable units. Compile a single spreadsheet with these series. 6- In the spreadsheet, first compute the annual growth rate of disposable income and consumption for all years in the sample. Then compute the average for the period 2000-2017 for both variables. Finally, construct a demeaned measure of the annual growth rate of disposable income and consumption for all years in the sample. That is, let C t denote consumption in year t. Then, the growth rate of consumption between year t and t−1 is [(C t /C t−1 )−1], denoted by gC t. Now, let gC denote the average annual growth rate in consumption since 2000 . This number will stay fixed and not changing…Hello Can you tell me what the implication of the "Euler equation of consumption " do and what the meaning is behind it R = Expected return delta = Stochastic discount factor C = consumption
- For an IS/LM model of an economy with the following equations: C = 200 + 0.8Yd I = 220 – 25i G bar = 240 TR bar= 150 T = .2Y L = .1Y – 3i M bar / P bar =125 The equilibrium interest rate and output combination is (9.2, 1526) (69.5, 2168.4) (30, 1250) (3, 125)If the value of marginal propensity to save is 0.8 what will be the value of investment multiplier?Assume that Andrew Marcus is 25 years old and expects to live until the age of 75. (a) If he wins €20 million in cash (after taxes) in the lottery and retires, how much will he consume each year if he wants to have constant consumption and use up all his wealth by the time he dies? Assume the real interest rate is zero. (75 words max) (b) If his total income in the year he wins the lottery is his lottery winnings, what will his average propensity to consume be for that year? (75 words max) (c) If he has no other earnings in later years but continues his constant consumption, what will his average propensity to consume be for those later years? (75 words max) (d) What is Andrew's "permanent income" in the year he wins the lottery? What is his "transitory income"? (75 words max)
- Consider an initial IS-LM equilibrium with normally-sloped curves. An increase in government spending takes us to a new equilibrium with ________ income and ________ interest rate. Select one: a. an unchanged, a higher b. higher, a lower c. higher, a higher d. lower, an unchangedConsider the following functions for consumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate? Answer all four.If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase consumption by Multiple Choice 80. 100. 20. 120.
