Suppose that the following equations describe goods and money market equilibrium (symbols are as defined in the lecture notes). IS curve: i = 200 – 2*Y; LM curve: i = - 400 + 6*Y. Compared to the initial equilibrium position, which of the following could have happened if equilibrium output is now 50 and the equilibrium interest is now 25? increase in money supply O increase in government spending
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- a. Using the attached image as an example, graphically derive the LM curve, using instead a graph that relates money demand to income. Please put the stock of money on the vertical axis and income on the horizontal axis and set this diagram above the LM diagram. b. Please show how the IS curve and the LM curve can be shifted to get an increase in output without a change in interest rates. What kind of mixed monetary and fiscal policy is needed to do this? Will a reduction in interest rates, while holding output constant, do this?. Assume that the monetary policy curve is given byr = 1.5 + 0.75p.a. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%.b. Draw a graph of the MP curve, labeling the pointsfrom part (a).c. Assume now that the monetary policy curve is givenby r = 2.5 + 0.75p. Does the new monetary policycurve represent an autonomous tightening or loosening of monetary policy?d. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%, and draw the new MP curve,showing the shift from part (b).conomics Consider a consumption function of C = 0.75 (Y – T). a) If government spending increases by $300 and there is a tax hike of $500 to fund thisincrease, according to the IS-LM model will the IS curve shift up or down and byhow much?b) Considering your shift in the IS curve from part a, how should the Federal Reserveadjust the money supply if they want to keep interest rates constant?
- 1. Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. d) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. e) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).Assume that the long-run level of output is Y=1000Y=1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C=100+0.8(Y−T¯),I=100−2000r,C=100+0.8(Y−T¯),I=100−2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M¯P=Y200i.M¯P=Y200i. The government is currently implementing a policy G¯=80,T¯=50G¯=80,T¯=50, and the central bank (CB) is supplying M¯=1000M¯=1000. Expected inflation is πe=0πe=0. Derive the IS curve. It should be written in the form Y=A−BiY=A−Bi, that is, you only need to solve for the values of A=A=Answer and B=B=Answer.Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)? B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)? C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
- Please pleaseee do this Question : For this question assume that the real money demand function is L(R, Y) = kY - hR where k > 0 represents the sensitivity of the money demand to income and h > 0 represents the sensitivity of the money demand to the interest rate. Suppose that these sensitivity parameters are not known for the economy of Macroland and there are two possibilities: it is either i) high k and low h, or ii) low k and high h. To understand which one of these two scenarios is correct you analyze a given policy change: an increase in the overall level of taxes. Using the AA-DD model, compare and contrast the short run effects of this policy change in Macroland under these two scenarios. Explain your results intuitively.1.Consider the Economy of Rwanda. The consumption function is given by ?=200+0.75[?−?] while theinvestment function is ?=200−25?. Government purchases and taxes are both 100.The money demand function of Rwanda is [??⁄]?=?−100?. The nominal money supply is 100 and theprice level P is 2.i i) Derive the IS curve equation.ii ii) Draw a well labeled diagram of the IS Curve.iii iii) Derive the LM curve equation.iv iv) Draw a well labeled diagram of the LM Curve.v v) Determine the equilibrium level of income and equilibrium interest rate2.Keynes developed the concept of the multiplier with the intention of arguing that extra governmentspending on public works which is financed by a budget deficit would have a positive effect on a demanddeficient economy. However, several factors limit the application of the multiplier for an economicmanagement. Discuss3.Trade war happens when one country retaliates against another by using import tariffs or placing otherrestriction on the other country’s…Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?
- Consider following IS-LM model: C = 200 + 0.25 · YD I = 150 + 0. 25 · Y – 1, 000 · i G = 250 T = 200 D M = 2 · Y – 8, 000 · i M = 1,600 P e) Solve for the equilibrium values of C and I! f) Solve for the equilibrium values of Y, i, C and I, if the money suppl increases to 1,840! g) Solve for the equilibrium values of Y, i, C and I, if government spending increases to 400 (the money supply is 1,600)!Give typing answer with explanation and conclusion A standard "money demand" function used by macroeconomists has the form ln(m)=β0+β1ln(GDP)+β2R, Where m is the quantity of (real) money, GDP is the value of (real) gross domesticproduct, and R is the value of the nominal interest rate measured in percent per year. Supposed that β1 = 2.66 and β2 = −0.05. A) What is the expected change in m if GDP increases by 4%? The value of m is expected to_________(increase or decrease ) by approximately ________% (Round your response to the nearest integer) B) What is projected to change in m if the interest rate increases form 2% to 6% ? The value of m is expected to ________(increase/decrease) by approximately ________% (Round your response to the nearest integer)Consider the following IS-LM model:C=200+0.25YdI=150+0.25Y-1000iG=250T=200Real Money Demand=M/P=2Y-8000iReal Money Supply=1600a. Derive the IS relation.b. Derive the LM relation.c. Solve for equilibrium real output and interest rate and show it in a graph, draw IS and LM curves.d. Solve for values of C, G and I and verify that they add up to Y you obtained in part c.e. Now suppose that the money supply increases to M/P=1840. Solve for Y, i, C and I and describe inwords the effects of an expansionary monetary policy. Show the change in a graph.f. Set M/P to its initial value of 1600. Now suppose that government spending increases to G=400.Summarise the effects of an expansionary fiscal policy on Y, i, C. Use a graph to show the shift in ISand/or LM.