Urgentttt!!! Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and reduction in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain.

Urgentttt!!! Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and reduction in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model

Section: Chapter Questions

Problem 1CQ

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Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in taxes and reduction in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain.
Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and reduction in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain.
Consider an IS-LM model. Suppose the central bank increases the money supply by 5 percent. But the price level also increases increase by 10 percent. Part 1What will be the change in LM curve? What will be the change in equilibrium interest rate and output? Explain properly using a graph?Part 2What will be the change in the AD curve? (Hint: first derive the AD curve from IS-LM model and then consider whether AD will shift to the left or right given the change in LM curve) Given that the SRAS curve is horizontal, what will be the impact of change in AD on price level?
Using the IS LM model, show how expansionary monetary and expansionary fiscal have same effect on output but opposite impact on interest rates. b. Derive the equations for IS and LM curves from the set of equations given below: C = 80+ 0.75Yd I = 300-200 i G is government expenditure G = 30 T = 30 where T= taxes Ms = 270 where Ms is money supply Md = 150+ 0.30Y – 300i Find the volume of investment at equilibrium . What would be the impact on investment if Money supply is increased to 300.
Suppose in a closed economy, an unexpected pandemic discourages household consumption.i. Use the IS-LM model to explain its effects on interest rate, investmentand output level in the short run.
Explain if, and why, you agree, or do not agree, with the following statement [when answering, assume that, in each time period, the economy is described by a static IS-LM model, with consumption and investment depending on contemporaneous variables only]:"In a closed economy wherke the central bank chooses the money supply, the prices of stocks at time t, €Qt, will unambiguously rise if, from time t onwards, government purchases of goods and services, G, go up".
This question involves the use of the IS-LM and AS-AD models. A. Suppose that, ceteris paribus, the government raises taxes. Diagram the effects of such a change in the IS-LM model. What happens to “the” interest rate? B. Now show both the short-run and long-run effects of this change in the IS-LM model in the AS-AD model. What happens to the price level and output in the short and long runs?
Suppose the economy is initially in its long-run equilibrium. Due to the biased (overestimated) expectation of return, the entrepreneurs overwhelmingly become much more aggressive in investment holding other things equal. a. Use the IS-LM model and AD-AS model to graphically illustrate the impact of the biased expectation in the short run and in the long run. What are the changes in the equilibrium real interest rate, output, and prices? b. If the central bank wants to offset the impact of the biased expectation, what is the appropriate measure? Draw a graph as in part a. for illustration. What are the changes in the equilibrium real interest rate, output, and prices in this case?
Consider the following IS–LM model: C = 100 + .25YD I = 50 + .25Y - 1000i G = 150 T = 100 (M/P) d = 2Y - 8000i (M/P)s = 1000 a. Derive the IS relation b. Derive the LM relation c. Solve for equilibrium real output. d. Solve for the equilibrium interest rate e. Solve for the equilibrium values of C and I f. now suppose that the money supply increases to M/P = 1010. Solve for T, f. suppose that government spending increases to G = 155 What is the value of money supply? g. From what we studied, which policy, expansionary fiscal policy or expansionary monetary policy will undoubtedly increase investment.
For each of the following scenarios, assume the economy experiences an exogenous decrease in investment demand. For each case, illustrate the IS-LM-FX diagram and state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Here, we assume the policy makers’ objective is to keep output fixed at its initial value
In response to crisis, the Central Bank has deceased their policy rate from 13.5 % to 8% .Explain using the IS LM Model explain what should be happen to the economy???
Explain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve. Furthermore, Explain in words how and why the income and interest sensitivities of the demand for real balances affect the slope of the LM curve. According to the IS–LM model, what happens to the interest rate, income, consumption, and investment under the following circumstances?a. The central bank increases the money supply.b. The government increases government purchases.c. The government increases taxes.