Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. AS L000 1.300 Aggregate output (income) () (hillions of dollarn) Refer to Figure 26.1. This economy reaches capacity at Select one: a. $500 billion b. $1,500 billion c. an output level that is indeterminate from this information because aggregate demand is not given d. $1,000 billion Price level

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. AS L000 1.300 Aggregate output (income) () (hillions of dollarn) Refer to Figure 26.1. This economy reaches capacity at Select one: a. $500 billion b. $1,500 billion c. an output level that is indeterminate from this information because aggregate demand is not given d. $1,000 billion Price level

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter20: Exchange Rates And The Macroeconomy

Section: Chapter Questions

Problem 3TY

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Question The rate of output and planned expenditures for the economy of Timbuktu are shown in the following table: Total Output Planned Aggregate Expenditures (Two-Sector Economy)(Real GDP in billion dollars) (in billions) 5,000 5,250 5,500 5,500 6,000 5,750 6,500 6,000 7,000 6,250 a) If the current output rate is $5.0 trillion, what will tend to happen to business inventories, future output, and employment? b) If the current output rate is $6.5 trillion, what will tend to happen to inventories, future output and employment? c) What is the…
Assume certain coutory economy consumption function =200+0.75(Y-T) given government purchase and Tax are 100 and investment function =100-25r real money demand =25y-100r money supply =1000 then find equilibrium income and interest rate when government purpose increase by 80 percent and tax increase by 70 percent draw IS and LM curve and by how much they shift ?
Sometimes understanding of ISLM becomes clearer when one works through the algebra. This question is designed to promote such understanding. Consider Country A, a closed economy characterized by the following relationships: C = 200 + 0.5YD I = 70- 5r G = T = 100 MD = 500 + Y – 15i where YD, disposable income, is equal to income less taxes, Y-T, and r and i are the real and nominal interest rates expressed in percent. Country A is ruled by a fierce dictator who abhors price movements, so assume prices are not allowed to change in this economy, i.e., that i = r. a) Suppose G rises to 300. Assume no change in taxes or money supply. Derive the new IS curve. Does it shift right? Do rates rise? b) Suppose the money supply increases from 800 to 950. Derive the new LM curve. Does it shift right? Do rates rise?
Sometimes understanding of ISLM becomes clearer when one works through the algebra. This question is designed to promote such understanding. Consider Country A, a closed economy characterized by the following relationships: C = 200 + 0.5YD I = 70- 5r G = T = 100 MD = 500 + Y – 15i where YD, disposable income, is equal to income less taxes, Y-T, and r and i are the real and nominal interest rates expressed in percent. Country A is ruled by a fierce dictator who abhors price movements, so assume prices are not allowed to change in this economy, i.e., that i = r. a) Assume Y=600 and plot money demand as a function of the nominal interest rate (put MD on the x-axis and i on the y-axis). Plot a second money demand function assuming Y=450. Assume the Central Bank sets the money supply at 800. What is the equilibrium real interest rate if Y=600? If Y=450? (Do the relative levels of these interest rates make sense to you?) b) Assume that the money supply is 800. Derive algebraic expressions…
Sometimes understanding of ISLM becomes clearer when one works through the algebra. This question is designed to promote such understanding. Consider Country A, a closed economy characterized by the following relationships: C = 200 + 0.5YD I = 70- 5r G = T = 100 MD = 500 + Y – 15i where YD, disposable income, is equal to income less taxes, Y-T, and r and i are the real and nominal interest rates expressed in percent. Country A is ruled by a fierce dictator who abhors price movements, so assume prices are not allowed to change in this economy, i.e., that i = r. a) Assume that the Central Bank of Country A sets the nominal interest rate at 4% (r=4) and keeps it at that level. Find consumption, investment and output in equilibrium. b) What money supply is consistent with a real interest rate of 4 percent? Given this money supply, show that saving equals investment. c) Assume Y=600 and plot money demand as a function of the nominal interest rate (put MD on the x-axis and i on the…
Sometimes understanding of ISLM becomes clearer when one works through the algebra. This question is designed to promote such understanding. Consider Country A, a closed economy characterized by the following relationships: C = 200 + 0.5YD I = 70- 5r G = T = 100 MD = 500 + Y – 15i where YD, disposable income, is equal to income less taxes, Y-T, and r and i are the real and nominal interest rates expressed in percent. Country A is ruled by a fierce dictator who abhors price movements, so assume prices are not allowed to change in this economy, i.e., that i = r. a) Assume that the Central Bank of Country A sets the nominal interest rate at 4% (r=4) and keeps it at that level. Find consumption, investment and output in equilibrium. b) What money supply is consistent with a real interest rate of 4 percent? Given this money supply, show that saving equals investment.
Question Consider that the Ghanaian economy is a small and close, which is characterised by the following. AD=C+I+G+NX C=a+bY* Y*=disposal income T=T0 I=I0 G=G0 Md/P=Ld(Y,i) Ms=money supply ,which is given . AD=Aggregate demand ,C=consumption,G=Government expenditure ,T=Tax,P= Pricelevel,I=Investment,NX=Netexports (a) Consider an increase in Government spending ∆ > .Assume for now that both price and expected price are fixed. Also assume that government does not implement any other policy than the increase in Government spending. What is the effect of this policy on the goods market? (b) What is the effect on equilibrium in the money market? Present your answer in swells labelled diagram, showing both money supply and demand before the policy was implemented, and that after the policy was implemented in the same graph. (c) Solve for equilibrium in the goods market. d) Suppose the policy change is rather a increase in real money supply not a decrease in government spending.What…
Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75YD, where YD is disposable income, and C is consumption, and that planned investment is $75. What will happen if aggregate wealth decreases by $100, all else equal? a. The aggregate spending line will shift downward. b. The income–expenditure equilibrium real GDP will increase by more than $100. c. There will be no multiplier effect on real GDP, since there is a drop in aggregate wealth. d. Planned investment will increase.
ax policy is one used not only for economic purposes but also for political purposes. It is the opinion of some economists and politicians that the rich should pay more of their income in taxes, and that the resulting fairness from this rise in taxes will lead to more economic growth and a rise in employment. Using the simple expenditure model (Y and Ep, not IS-LM) answer these two questions: One, would a lump-sum tax increase on many high-income households cause GDP to rise in the short run as predicted by the politicians? Why or why not? And two, are there macroeconomic conditions in the simple model under which such a tax increase would be fully warranted? Draw the graphs and explain the outcomes for both cases.
The rate of output and planned expenditures for the economy of Timbuktu are shown in the following table: Total Output Planned Aggregate Expenditures (Two-Sector Economy) (Real GDP in billion dollars) (in billions) 5,000 5,250 5,500 5,500 6,000 5,750 6,500 6,000 7,000 6,250 c) What is the equilibrium rate of income/output of Timbuktu economy? d) If the economy's full employment rate of output is $6.0 trillion, what will happen to the unemployment rate assuming that it will persist into the future? e) What would happen to the equilibrium level of output/income if there will be an autonomous increase in investment of $250 billion?
a) What generally happens to the major macroeconomic variables such as GDP, unemployment rate, and inflation rate during an economic recession? b) Define economic expansion using the reference terms of actual GDP and potential GDP. c) Explain how investment spending and interest rate related. What is the reason behind such a relationship? d) Find the correlation coefficient between interest rate and Real Investment. Does this (actual) value support the theoretical relationship between the variables? Explain. (e) Explain the importance of investment spending for the economy. Only typed answer
Labor Market Y = α (5N – 0.0025N2), where α = 2; N = labor The supply of labor, NS isNS = 55 + 10(1-t)w where t- tax rate = 0.5, w = real wage rate Good Market The desired consumption, Cd is Cd = 300 + 0.8(Y – T) – 200rWhere Y = income, T = taxes, r = real interest rate T= 20 + 0.5YG= 50Desired investment, Id:Id = 258.5 – 250r Money Market Demand for money, Md/P: Md/P = 0.5Y – 250(r + πe), where πe = 0.02 (expected inflation) Money supply = Ms = 9150 a)Find the equilibrium w, Y and N.b)Find the IS-curve and the equilibrium r, C and I.c)Find the LM-curve and the equilibrium P.d)If G increased to 72.5, find the equilibrium w, P, N, r, C and I.e)Discuss the differences between the equilibrium values in d) with a), b) and c). What is your conclusion with regard to the effectiveness of fiscal policy in this model?