ECON MACRO (with ECON MACRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
5th Edition
ISBN: 9781305659094
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 4.9P
Sub- Part
A
To determine
the effect on the demand over time, when the economy’s real GDP is growing.
B
To determine
the effect on the interest rate over time, when the economy’s real GDP is growing.
C
To determine
the effect on the interest rate over time, when the fed changes the money supply in order to match the money demanded.
D
To determine
the effect of the policy as discussed in part c on the stability of the economy over the business cycle.
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Question: Consider an economy where the velocity of money is constant, and the economy is at full employment. If the central bank decides to increase the money supply by 5% but at the same time, the government imposes new taxes that effectively remove 5% of the consumers' disposable income, what would be the likely short-term effect on the nominal Gross Domestic Product (GDP) and the general price level? A) Nominal GDP remains unchanged; the general price level increases. B) Nominal GDP increases; the general price level remains unchanged. C) Nominal GDP remains unchanged; the general price level decreases. D) Nominal GDP increases; the general price level increases. Please don't use chatgpt it is giving wrong answer. Please try do it with yourself.
INTEREST RATE (Percent)
3
6
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves
Assume the central bank in this economy (the Fed) fixes the quantity of money supplied.
Suppose the price level decreases from 90 to 75.
Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money.
18
Money Supply
15
12
0
0
10
20
30
Money Demand
40
50
60
MONEY (Billions of dollars)
Money Demand
Money Supply
Ⓡ
4) a Suppose there is a decrease in consumer optimism about the future (often called a
decrease in consumer confidence). Specifically assume that consumer confidence (co) falls. What
will be the effect on consumption for any level of output and taxes? Show how the change in
consumption behavior will affect the IS-LM diagram. What is the effect on output and the
interest rate?
b Suppose the Federal Reserve wanted to eliminate the effects on output you described in
part (a). What could the Federal Reserve do to maintain constant output? In an IS-LM diagram,
show how this policy, when combined with the decrease in consumer confidence, maintains
constant output. How is investment ultimately affected by the combination of the decrease in
confidence and the Federal Reserve policy? How is consumption affected?
Chapter 15 Solutions
ECON MACRO (with ECON MACRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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