PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 13, Problem 4P
(a)
To determine
Construct a table to find the short-run equilibrium output and consider possible values ranging from 8,200 to 9,000.
(b)
To determine
Determine the short-run equilibrium output of this economy using the Keynesian cross.
(c)
To determine
The output gap and actual
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Suppose we start with a general equilibrium, and there is a decrease in the effective tax rate on capital. Which of the following statements correctly describes how the economy restores from the short-term equilibrium towards the long-term equilibrium?
1. Short-term output is smaller than full-employment level output and price rises
2. Short-term output is greater than full-employment level output and price rises
3. Short-term output is smaller than full-employment level output and price drops
4. Short-term output is greater than full-employment level output and price drops
5. None of the above
Assume the following model of the closed economy in the short run, with the price level (P) fixed at 1.0:
C=0.5(Y-T)
T=1000
I=1500-250r
G=1500
Md/p=0.5Y-500r
Ms=1000
a) Derive a numerical formula for the IS curve, showing Y as a function of r alone.
B)Derive a numerical formula for the LM curve, showing Y as a function of r alone.
C) What are the short-run equilibrium values of Y, r, and national saving (S)?d)Assume that G increases by 1,500 (i.e., G = 3; 000). By how much will Y increase in short-run equilibrium?
e)You are the chief economic adviser in this hypothetical economy. Do you believe that fiscal policy is more potent than monetary policy? Briefly discuss
f)Derive the numerical aggregate demand (AD) curve for this economy, expressing Y as a function of P
Assume the economy of Germany is in a long run equilibrium with full employment.
Draw a correctly labeled graph of short run aggregate supply, long run aggregate supply, and aggregate demand. Show each of the following
Equilibrium output, labeled Y1.
Equilibrium price level, labeled PL1
2. Suppose that there is a significant boom in the German stock market, causing all stocks to increase in value by 15%. On your graph in part A, show the effect this will have on the equilibrium in the short run, labeling the new equilibrium output and price level Y2 and PL2, respectively.
3. Using a correctly labeled graph of the Phillips Curve, show how this change will affect the economy.
4. What two fiscal policy options does the federal government have to fix the market imbalance? Explain how each would affect the economy.
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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