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- The graph shows the aggregate demand curve and the short-run aggregate supply curve in Artica Potential GDP i Intialy $300 Bilion. A drought decreases potential GDP to 1250 bilon. Draw the new Potenal GDP Ine. Label it. Draw a curve to show what happens if the central bank lowers the federal funds rate. Label the curve. Draw a point at the new equilbrum price level and real GOP Label 1. Now starting trom the original equibrium, draw a curve to show what happens if the central bank raises the federal unds rate Label the curve. Drawa point at the hew equilbrium price level and real GOP, Label it 2. To retum the economy to polental GOP, he central bank should _________ the federal tunde rate O A. Raise O B. lowerAsap plz Assuming the economy has a strong-form market and that the current economy has reached its long-term equilibrium with optimal inflation rate π = 3 (%) and the aggregate output y = 10 (£bil). The economy has the following AD-AS curves: I. AD Curve: π = 10-0.7y II. AS Curve: π = 1+0.2y III. LRAS Curve: y = 10 Now, the central bank intends to use monetary policy to boost economic growth and suggest the government to increase £1bil in government expense. You are a researcher and now reviewing effect increased expense. a. What is the short-term equilibrium of π and y? b. What is the long-term equilibrium of π and y? c. What is the new AS curve? Do you think central bank’s suggestion on monetary policy effective?On June 5, 2003, the European Central Bank acted to decreasethe short-term interest rate in Europe by half a percentagepoint, to 2 percent. The bank’s president at the time, WillemDuisenberg, suggested that, in the future, the bank could reducerates further. The rate cut was made because European coun-tries were growing very slowly or were in recession. What effectdid the bank hope the action would have on the economy? Bespecific. What was the hoped-for result on C, I, and Y?
- Consider in a country A: money supply M=3000, price level P=3, inflation expectation andliquidity preference is assumed to be zero to make the calculation simple. The money demandfunctionL(i,Y) =Y−200∗(r+πe). Consumption C=300+0.8*(Y-T)-20*r, investment functionis I=700-80*r, government spending and tax are both 500. (1) Solve the real interest rate and the real GDP in equilibrium. (2) If government spending and tax both increases by 150 to keep the government budgetbalance, what is the new equilibrium real interest rate and the new equilibrium real GDP.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.Assume that investment, government expenditures, taxes are autonomous.C = 2000 + 0.65* (Y-T)I = 900 – 50iG = 400T = 1500M = 1000P = 2L = 0.50Y-25ia.What is the value of the sensitivity money demand to the level of income?b.What is the value of the nominal supply?c.What expression represents the IS curve?d.What is the equilibrium interest rate, i*?e.What is the equilibrium income, Y*?
- Econ question: a.Explain and show the impact on the money market when the Federal Reserve lowers the interest rate on bank reserves (the IORB). Graph and Detail the adjustment process. (the seps to equilibrium) b. How is the level of investment in the economy affected? Graph and explain. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.C = 100+0.8(1-t)Y I = 200- 1000i L = 1/2Y-7000i G= 700 t = 0.33 M/P = 500 a) using the IS - LM model show the impact of the tax cut under two assumptions : i) the government keeps interest rates constant Through an accommodating Monetary Policy. ii) The money stock remains unchanged B) Explain the difference in resultSuppose the monetary policy curve is given byr = 1.5 + 0.75p, and the IS curve is given byY = 13 - r.a. Calculate an expression for the aggregate demandcurve.b. Calculate the real interest rate and aggregate outputwhen the inflation rate is 2%, 3%, and 4%.c. Draw graphs of the IS, MP, and AD curves, labelingthe points from part (b) on the appropriate graphs.
- Time remaining: 00 :09 :06 Economics If there is an inflationary gap, what should the Fed do? Explain, provide name, and show in i-M space. Consider the following macroeconomy, with fixed prices (all amounts are in millions of $): YFE = 7000 C = 40 + 0.9 YD I = 500 G = 250 T = 40 a. Calculate eqm Y in this model and then graph it in the Keynesian-cross diagram. Indicate and provide the name and size of the gap, if any. b. Prove that the appropriate relationship between I and various types of Savings holds at eqm. c. What two different policies could Congress enact? You must calculate the exact changes in the appropriate variables and provide the appropriate name(s) for the(se) policies. Graph each of these policies in the Keynesian-cross diagram. Show what your policies would do, if anything, in the money-market diagram, (in i- M space) cet. par. Indicate the initial disequilibrium and explain what will happen and why. d. Go back to the original eqm in part a. Now…Consider the following economy: Labor supply: Nt= 90 Capital stock: Kt = 90 Government spending: Gt = 20 Tax collections: Tt = 20 Production function: Yt = 2(Kt)0.5 (Nt)0.5 Real money demand Lt = 2Yt - 200rt Consumption function: Ct = 16 + 0.8(Yd)t Domestic price level: Pt = 4 Investment function: It = 25 - 50rt Nominal money supply: Mt = 1296 Plot (a)-(d) on the IS-LM and AD-SRAS-LRAS diagrams. Make sure to label (i) the axes, (ii) the curves and (iii) the initial equilibrium levels.
