Macroeconomics (Fourth Edition)
Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 11, Problem 1E

(a)

To determine

The short-run effect of an increase in the interest rate.

(b)

To determine

The short-run effect of a fall in the rate of interest.

(c)

To determine

The short-run effect of a 1 percent point increase in a¯c

(d)

To determine

The short-run effect of a 2 percent decrease in a¯g.

(e)

To determine

The short-run effect of a 1 percent point increase in a¯im.

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Students have asked these similar questions
Suppose the parameters of the IS curve are a_bar = 0, b_bar = 1/2, r_bar = 2%, and
 R = 3%.    Calculate the initial short-run output. Calculate the short-run output when real interest rate rises to 5%. Calculate the short-run output when real interest rate goes to 0. What’s the value of real interest rate when the economy is outputting at its long-run level.
Suppose the parameters of the IS curve are a_bar = 0, b_bar = 1/2, r_bar = 2%, and
 R = 3%.  What’s the value of real interest rate when the economy is outputting at its long-run level.
Assume that an economy is in long-run equilibrium. Assume consumers wish to hold less money because they use credit cards more frequently to purchase goods and services then cash. (a) Draw a correctly labeled graph of the money market and show the effect of the reduced holdings of money on the equilibrium nominal interest rate in the short-run. (b) Based on the change in the interest rate in part (a), what will happen to each of the following in the short-run? i. Prices of previously issued bonds ii. The price level and real income. Explain. (c) With a constant money supply, based on your answer in b(ii), will the velocity of money increase, decrease, or remain the same, or is the change indeterminate? (d) If the Central Bank wishes to reverse the change in the interest rate identified in part (a), what open market operation would it use?
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