Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Question
Chapter 10, Problem 3NP
a)
To determine
The equilibrium values of output, real interest rate, price level, consumption and investment and the equation of IS curve, LM curve and the aggregate demand curve.
b)
To determine
The equilibrium values of output, real interest rate, price level, consumption and investment and the equation of the aggregate demand curve.
c)
To determine
The equilibrium values of output, real interest rate, price level, consumption and investment and the equation of the aggregate demand curve.
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Check out a sample textbook solutionStudents have asked these similar questions
Consider the AD/AS model with a constant inflation rate. It is possible that the money supply is rising while interest rates are unchanged because...
a.
Declining interest rates cause the investment demand curve to shift to the left, which causes interest rates to rise back to their original level.
b.
The rising price level increases money demand, offsetting the impact of the rising money supply.
c.
The rising price level decreases money demand which pushes up interest rates.
d.
Declining interest rates cause the investment demand curve to shift to the right, which causes interest rates to rise back to their original leve.
e.
The money transmission mechanism does not apply in a situation of sustained inflation.
Suppose real and potential GDP are initially equal. If the Fed increases the target inflation rate, then in the short run we would expect
a decrease in the rate of inflation.
an increase in the rate of inflation.
a higher real rate of interest.
lower unemployment.
a higher nominal interest rate.
Discuss the impact of monetary and fiscal policy in each of these special cases:4. 1.1. If investment does not depend on the interest rate, the IS curve is vertical.4.1.2. If money demand does not depend on the interest rate, the LM curve is vertical.
Chapter 10 Solutions
Macroeconomics (9th Edition)
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- Suppose the current level of output and the interest rate are such that the economy is operating on neither the IS nor LM curve. Which of the following is true for this economy? A) Production does not equal demand. B) The money supply does not equal money demand. C) The quantity supplied of bonds does not equal the quantity demanded of bonds. D) Financial markets are not in equilibrium. E) all of the abovearrow_forwardChapter 14, Problem 5, p. 530. (not answered) In the New Keynesian model, how should the central bank change its target interest rate in response to each of the following shocks? Use diagrams and explain your results. (a) There is a shift in money demand. (b) Total factor productivity is expected to decrease in the future. (c) Total factor productivity decreases in the present Chapter 14, Problem 6, p. 530. (not answered) In the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic efficiency. That is, ideally the central bank would like the output gap to be zero. Suppose initially that the economy is in equilibrium with a zero-output gap. (a) Suppose that there is a shift in money demand. That is, the quantity of money demanded increases for each interest rate and level of real income. How well does the central bank perform…arrow_forwardSuppose an economy is characterized by the following three equations: where the first equation is an aggregate-supply function written in the form of an expectations-augmented Phillips curve, the second is an IS or aggregate-demand relationship, and the third is a money-demand equation, where ∆m denotes the growth rate of the nominal money supply. The real interest rate is denoted by r and the nominal rate by i, with Let the central bank implement policy by setting i to minimize the expected value of Assume that the policy authority has forecasts ef , uf , and vf of the shocks but that the public forms its expectations prior to the setting of i and without any information on the shocks. a. Assume that the central bank can commit to a policy of the form prior to knowing any of the realizations of the shocks. Derive the optimal commitment policy (i.e., the optimal values of c0, c1, c2, and c3). b. Derive the time-consistent equilibrium under discretion. How does the…arrow_forward
- In the basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should A. increase the nominal interest rate by the amount of the natural real interest rate increase. B. reduce the nominal interest rate by the amount of the natural real interest rate increase. C. increase the nominal interest rate by less than the amount of the natural real rate of interest increase. D. reduce the nominal interest rate by less than the amount of the natural real interest rate increase. E. do nothingarrow_forwardWhen workers do not notice inflation has taken place they do not realize that their real wage has declined. This phenomenon is consistent with which reason for the upward slope in the SRAS curve? mispreceptions the interest rate effect menu costs the principle-agent problemarrow_forwardAccording to the Keynesian ideas on Aggregate Demand, a macroeconomist would most likely expect business expenditure to increase when ... Group of answer choices a. Interest rates are low and expected returns are low b. Interest rates are high and expected returns are high c. Interest rates are low and expected returns are high d. Interest rates are high and expected returns are lowarrow_forward
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