Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 19, Problem 9DQ
To determine
Different macro-economic views.
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COVID-19 has sent the economy of Classica into recession. The finance ministry has advised the government to lower stamp duty and other purchase service charges for those wanting to buy existing houses in order to boost economic growth. As well, the finance ministry wants the government to also cut company taxes as this will lead to firms increasing their level of investment in the economy. The President of Classica has asked you, as her chief economic advisor, for your views.
Would a cut in stamp duty and other purchase charges on the purchase of existing houses really boost the economy?
Suppose the economy of Macroland is described by the following:C = 200 + 0.8 DI (DI = disposable income)I = 300 + 0.2Y − 50r (Y = GDP)(r, the interest rate, is measured in percentage points. For example, a 9 percent interest rate is r = 9).For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate atr = 5G = 750T = 0.25YX = 200M = 150 + 0.2YHint: DI = Y − T
From Table 36-1, find the trade deficit or surplus.
a.
75 surplus
b.
475 surplus
c.
475 deficit
d.
75 deficit
answer c and d
Suppose that the following system of equations describe the macroeconomy of a
hypothetical country:
Y= C(y)+I(i)+G : IS or goods market
M/p=L(i,y) : LM or money market
b) Taking money supply and government expenditure as exogenous and the price
level as fixed, determine and provide economic intuition for the signs and
magnitudes of the following multipliers
dY/dG and
di/dG
c) For a simultaneous increase in both the interest elasticity of investment and
interest elasticity demand for money parameters, determine the net effect on the
values of the multipliers in part b).
d) For a horizontal LM curve, determine the numerical values of your answers in
part b) above if:
Marginal propensity to consume=5/6
Tax rate=0.25
Interest elasticity of investment=5
Interest elasticity of demand for money=50
Income elasticity of demand for money=2
answer c and d only
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