Use the IS-LM model to determine the effects of an increased usage of automatic teller machines that reduces thedemand for money. Show the effects below on the general equilibrium values of real wage, employment, output, real interest rate, consumption, investment, and price level. Real wage Employment Output Price Level Real Interest Rate Investment Consumption
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- Suppose that in Macroland the consumption and the investment have a negative relationship withthe real interest rate and positive relationship with Y. The Central Bank of the country targets acertain nominal interest rate and lets the money supply adjust in order to reach that interest rate.a. Draw a graph of the IS-LM model in this situation.b. Suppose that the Central Bank announces an increase of the interest rate in the future.Represent graphically the initial position of IS-LM curves. Then, show the IS-LM curves of thefuture, after the announced increase in the interest rate is implemented. (Assume that the ISis constant.).c. Suppose that agents today take into consideration the resulting income of the future whendeciding the amount of consumption and investment. Show what happens to the IS-LMcurves today after the announcement of the CB (tip: the CB is NOT increasing the nominalinterest rate today).d. The government decides to step in and avoid any deviation of Y from the initial…Assume the following IS-LM model:Expenditure sector: Money sector:C = 100 + (4/5)YD I = 300 - 20i M = 700G = 120 TA = (1/4)Y P = 2 YD = Y - TA NX = -20 Md = (1/3)Y + 200 - 10i a) Derive the IS and LM equations for the above model.b) Draw the IS and LM curves. What are the equilibrium values of output (Y) and interest rate(i)? Show these values on the graph you drew. Derive the equilibrium values of consumption (C) and money demand (Md).c) How much investment (I) will be crowded out if the government increases its purchases by ΔG = 160 and nominal money supply (M) remains unchanged? Show how this increase in government purchases would affect the graph in part (b) by drawing a new graph.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.
- i neeed it in word form.. not handwrittten Explain, with the aid of three separate IS-LM-FE diagrams, how a decrease in government purchases will affect real output, real interest rate and the general price level in three steps:(i) before the general price level adjusts;(ii) when the general price level is adjusting;(iii) after the price adjustment process is completed.Is the general price level increasing or decreasing during the price adjustment process? Explain the intuition of your answer with reference to the AD-AS framework.In the 1970s a common practice was to estimate a distributed lag modelrelating changes in nominal gross domestic product (Y) to current andpast changes in the money supply (X). Under what assumptions will thisregression estimate the causal effects of money on nominal GDP? Arethese assumptions likely to be satisfied in a modern economy like that ofthe United States?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?
- 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*?Suppose, initially the Australian economy is atfull employment(in other words the economy is atthe potentialGDP). Using AD-AS model, explain how would each of the following events aectthe economy both in theimmediate and in the long term.a) A slowdown in China’s economic growth due to the sub-prime crisis in the US.b) Union wage settlements push the wage rate up.c) An increase in consumer confidence.a. Suppose that, ceteris paribus, the government raises taxes.Diagram the effects of such a change in the IS-LM model. Whathappens to “the” interest rate?b. Now show both the short-run and long-run effects of this changein the IS-LM model in the AS-AD model. What happens to the pricelevel and output in the short and long runs?
- Use the extended IS-LM model graph to show where the US economy is functioning now given that the current u is 7.9% and the full-employment (FE) u (aka un) is 4%. [Hint: if u > u FE then Y< Y FE.] Indicate the gap and provide its name. Let’s assume that a “second covid-19 wave” in December 2020 leads to more lockdowns, so that many more businesses struggle to survive and face an increase in their probability of bankruptcy. What is this “shock” and what would it do, cet. par., to your graph of part a.? Explain any shift(s). Let’s assume the Federal Reserve fixes the gap in your graph of part b. Provide appropriate name(s) and policy tools and show what will happen in your graph of part b. What role, if any, does the “zero lower bound” play?1Why low rate inflation is considered necessary for economic grwoth? Oa It does not affect the purchasing power of wages Ob. It indicates that the currency is in continuous demand by the people Oc taffects only the rich and not the poor Od itact as an incentive to boost in supply in the economy 2When the economy is in Keynesian macroeconomic equilibrium, planned investment is greater than actual investment. O a False O b. True 3Government fixes the floor and ceiling price which will not allow the producers to increase the price on their wish, this is a type of. O a Physical control called price pegging O b. Monetary policy control measures O. Physical control called price tagging Od. Fiscal policy control measures O e None 4Rising output coupled with falling prices is called stagflation O a. False O b. True 5The Value of marginal propensity to consume lies O a. O to 1 O b. Less than zero Oc -1 to 1 Od. Between O to 1 6The Central Bank way to control inflation is Oa Monetary policy…COURSE: MACROECONOMICS - IS-LM and/or MUNDELL FLEMING MODELS Refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a NULL impact on GDP. Then, refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a MAXIMUM impact on GDP. EXPLAIN very briefly the mechanism by which each model generates that NULL or MAXIMUM impact on GDP. Hint: 2 conditions under increase of M (money) and how impact null (zero) and maximum on GDP. Example, considering both fiscal or monetary policies or liquidity trap model. Please graph and explain on detail both cases.