EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
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
(d)
To determine
The short-run effect of a 2 percent decrease in
(e)
To determine
The short-run effect of a 1 percent point increase in
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
An economy is described by the following equation C d=14400 0.5(Y-T)-40000r, Ip=8000-20000r, G=7800, NX=1800, T=8000
a) Find the numerical equation relating planned aggregate expenditure (PAE) to output (Y) and to real interest rate (r).
b) The real interest rate is 0.133, find short-run equilibrium output.
c) Potential output, y*, equals 40,000. What real interest rate should be Reserve Bank set to bring the economy to full employment?
Fast
The following set of equations describe an
economy:
C = 14,400+ 0.5 (YT) - 40,000r
lp = 8,000 - 20,000r
G = 7,800
NX = 1,800
T = 8,000
Y* = 40,000
Suppose that the real interest rate (r) is 10%. Is the
economy in long run equilibrium? If not, what real
interest rate should central bank set to restore the
economy back to the long run equilibrium? And
what methods can central bank use to adjust the
interest rate? (Round your answer to 2 decimal
places)
Which of the following statements are true, which are false? If an increase in the real
interest rate leads to a higher level of consumption in both periods, this can be explained
through
(a) substitution effect of the real interest rate change;
(b) income effect of the real interest rate change.
Chapter 11 Solutions
EBK MACROECONOMICS (FOURTH EDITION)
Knowledge Booster
Similar questions
- The recent new payment system 'cryptcoin' reduces households' real money demand. What are the effects on output and the real interest rate in the short run? (please explain why) A) Real interest rate decreases, output decreases B) Real interest rate decreases, output increases C) Real interest rate increases, output increases D) Real interest rate increases, output decreasesarrow_forwardThe U.S. economy is initially in short-run macro-equilibrium. Assume that, in the face of Covid-19, firms’ costs increase as they must comply with safety regulations to keep their employees safe at work. As a result, we observe the following in our economy: Question 31 options: a) Both the price level and real GDP decrease b) The price level increases and real GDP falls c) The price level falls and real GDP increases d) Both the price level and real GDP increase.arrow_forwardThe graph on the right represents initial output in the short run. Suppose real interest rates fall. Using the line drawing tool, draw a new line depicting the new aggregate demand. Label this line 'D₂'. Carefully follow the instructions above and only draw the required object. C Aggregate demand, D Output (real income), Y D=Y D₁arrow_forward
- The following set of equations describe an economy: C = 14,400 + 0.5 (Y − T) − 40,000r Ip = 8,000 − 20,000r G = 7,800 NX = 1,800 T = 8,000 Y* = 40,000 Suppose that the real interest rate (r) is 10%. Is the economy in long run equilibrium? If not, what real interest rate should central bank set to restore the economy back to the long run equilibrium? And what methods can central bank use to adjust the interest rate? (Round your answer to 2 decimal places)arrow_forwardMany companies hold significant amounts of excess cash, that is, cash above the amount required for day-to-day operations. Does including excess cash as part of invested capital distort the ROIC upward or downward? Why?arrow_forwardThe U.S. economy is initially in short-run macro-equilibrium. Assume oil prices fall. As a result, we observe the following in our economy Question 2 options: a) Both the price level and real GDP decrease b) The price level falls and real GDP increases c) The price level increases and real GDP falls d) Both the price level and real GDP increase.arrow_forward
- a) What generally happens to the major macroeconomic variables such as GDP, unemployment rate, and inflation rate during an economic recession? b) Define economic expansion using the reference terms of actual GDP and potential GDP. c) Explain how investment spending and interest rate related. What is the reason behind such a relationship? d) Find the correlation coefficient between interest rate and Real Investment. Does this (actual) value support the theoretical relationship between the variables? Explain. (e) Explain the importance of investment spending for the economy. Only typed answerarrow_forwardtype plzarrow_forwardAssume 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?arrow_forward
- Please answer fast please help arjentarrow_forwardA recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment. True Falsearrow_forwardA recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment. True or falsesarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning