The equation of the IS curve is given by: y^t= A- a.r^t .What is the stabilising interest rate for this economy if y^t= 0.75, y^e= 0.26, A= 0.69 and a= 0.27.
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- The _____________ is inversely related to the real interest rate. Multiple Choice: LM curve quantity of real money demanded quantity of real savings quantity of real investment suppliedBased on the projections of the repurchase rate in the extract above.Explain, with the aid of a graph, the impact of a cut in the interest rate on thedemand for money.Suppose we start with a general equilibrium, and the economy experience an improvement in payment technology. Which of the following statements correctly describes the asset market response in the short term? 1. The LM curve shifts to the right 2. The Lm curve remains unchanged 3. The LM curve shifts to the left 4. None of the above
- Assume a closed economy described by an IS-LM model and illustrate with diagrams under which conditions it would be preferable to keep the interest rate constant, and under which other conditions it would instead be preferable to keep the monetary base at a given level.Economics Suppose that the effects of COVID-19 on the economy can be thought of as a permanent negative productivity shock, i.e., a permanent decrease of the production owing to lower total factor productivity. What does the model predict will happen to the following variables: (1) real interest rate, (2) real output), (3) real consumption, (4) real investment, (5) labor input? For each variable explain why COVID-19 would have the predicted effect.The LM curve shows all combinations of output and interest rate consistent with equilibrium on the market of goods true or false
- In an economy, the future marginal product of capital is MPKf=100-K, where K denotes the future capital stock. The price of capital is 100, the depreciation rate of capital is 0.1 and the current capital stock is 10. An equation relating desired investment (I) to real interest rate (r) isAn increase in the expected rate of inflation will the expected return on bonds relative to the that on real assets, and shift the curve to the .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…
- Explain why the IS curve is downward sloping in the interest rate-output space.Let the IS equation be: Y = A/(1-b) – [g/(1-b)]i, where (1-b) is the marginal propensity to save, g is the investment sensitivity to interest rates, and A is an aggregate of exogenous variables. Let the LM equation be: Y = M0/k + (l/k)i, where k is the income sensitivity of money demand, l is the interest sensitivity of money demand, and M0 denotes real money balances. If b = 0.7, g = 100, A = 252, k = 0.25, l = 200, and M0 = 176, do the following operations: a. Write the IS-LM equation in matrix form. b. Solve for Y and I by matrix inversion. c. Solve for Y and i by Cramer's Rule. 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.D7) IS-LM Model: Based on your understanding of the IS-LM model, graphically illustrate and explain what effect a monetary expansion will have on output, the interest rate, and investment. ( Properly)