EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 5NP
a)
To determine
Percentage of difference between
b)
To determine
Percentage of difference between equilibrium
c)
To determine
Real output level
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Assume the money demand function for this economy is a function of income (Y) and a constant (k) in the following way:
Demand for Money
=
kY
In 2015, real money balances were .............. This implies that people want to hold ............. of every euro of income in the form of money.
From the following information, calculate the equilibrium values of Income (Y), interest rate (i) investment (I), net exports (NX), and money demand (md).
Suppose that a person's yearly income is $60,000. Also suppose that this person's money demand function is given by
M = $Y(0.35 - )
Suppose that the interest rate is 15%.
The percentage change in this person's demand for money if her yearly income falls by 50% is
%.
Suppose that the interest rate is 10%.
The percentage change in this person's demand for money if her yearly income falls by 50% is
%.
Which of the following statements best describes the effect of income on money demand?
O A. any decrease (increase) in income leads to a proportional decrease (increase) in money demand regardless of the interest rate.
O B. Any decrease (increase) in income leads to a more than proportional increase (decrease) if money demand is low.
OC. Any decrease (increase) in income leads to a less than proportional increase (decrease) if money demand is high.
O D. Changes in income do not impact the demand for money.
Knowledge Booster
Similar questions
- Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)? B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)? C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardAssuming that GDP is fixed, fill in the missing values for Total Amount of Money Demanded Transactions demand = 1,050 Money Supply 1 (Ms1) = 2,850 Money Supply 2 (Ms2) = 2,250 Money Demanded for Total Amount of Rate of Interest Asset Purposes Money Demanded 18% 600 Number 16% 1,200 Number 14% 1,800 Number 12% 2,400 Number 10% 3,000 Number At money supply Ms1, the equilibrium interest rate is Number At money supply Ms2, the equilibrium interest rate is Numberarrow_forwardWhen consumers and businesses have greater confidence that they will be able to repay loans in the future: The quantity supplied of financial capital at any given interest rate will shift to the right The quantity demanded of financial capital at any given interest rate will shift to the right The quantity demanded of financial capital at any given interest rate will shift to the left The quantity supplied of financial capital at any given interest rate will shift to the leftarrow_forward
- Consider the following graph. The IS curve representing the goods market is drawn as the usual downward rate (EFFR) was 5.08%. Long-term trend output is given by the vertical line at Y* sloping curve. The ONRRP for May 2023 was 5.05% and the IORB was 5.15%. The effective federal funds 5.40 5.30 5.15 5.05 Y* Y=C(Y-T,W)+I(Y,r)+G Y 1. At the May 2023 band between the IORB and the ONRRP is the Fed able was the EFFR high enough to lower aggregate demand to target Y*? Explain. 2. In July 29, 2023 the Fed raised both the IORB and ONRRP by 0.25 percentage points (to 5.3 and 5.4%). The EFFR is currently 5.38%. According to the graph, is this range high enough for the Fed be able to use the EFFR to target Y*? Explain. 3. If the current level of the EFFR in the band between IORB and ONRRP causes housing prices to fall, could output fall below trend output? Explain. Illustrate in the graph above. 5arrow_forward3-) Consider an economy with the following economic functions; cd=1000+ 0.45Y - 45000r - 0.5G Id = 500 22500r Md -0.5Y - 3000 P And other variables are ² = 0.04, G=250, Y = 500, and M = 4200. a) Find the equilibrium values of the real interest rate, consumption, investment, and the price level. b) Suppose the money supply increases to 8400. Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (Assume that the expected inflation rate is unchanged)arrow_forwardConsider the following Keynesian economy Desired consumption: c" -220 + 0.6(Y - T)-200r Desired investment: 300 - 300r Taxes: T=20 + 0.2Y Government purchases: G= 152 Net exports: NX 150 -0.08Y -500r Money demand: L0.5Y -200r Money supply: M=936 Full-employment output: Y 1000 In this economy, the real interest rate does not deviate from the foreign interest rate. a. In the general equilibrium (that is, the long run), the value of output is 1000 , the real interest rate is 0.210, consumption is 646, investment is 237, net exports are -35, and the price level is 2.044 (Enter values rountled to three decimal places for the real interest rate and price level, and enter values rounded to integers for all other values.) b. Starting from full employment, govermment purchases are increased by 58, to 210. As a result of this change, in the short run, output becomes 1019. the real interest rate becomes 0.257, the consumption becomes 640, investment becomes 223, and net exports become - 60 (Enter…arrow_forward
- Consider an economy with the following information: Y = C + I + G, C=180+0.7( Y-T), I= 100-18i + 0.1 Y, T =400, G=400, P=1, M=5400, L=6Y -120i, M/P=L Derive the IS equation. Derive the LM equation. Solve the IS-LM to obtain the equilibrium output and the interest ratearrow_forwardThe supply of credit cards is given by q = 1400X, where X are real credit card balances, q isthe real price of the credit card balance. You also know that R = 0.05 (nominal interest rate)and P = 100. Answer the following questions about this:(a) If the money supply is M s= $5, 000, if P = 100 is the equilibrium price level, find Y (realoutput).(b) Suppose that the Federal Reserve Bank decides to increase the money supply by 10%.How much is the inflation rate as a result? Explain and justify your answer. (c) Further suppose that at the same time, real output, Y , increases by 10%. Now what isthe inflation rate? Does our quantity theory of money hold here? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardSuppose the economy's price level is 2 and real GDP is 30 , 000 for the year. Suppose the money supply is 5 , 000. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service? 10 8 12 16arrow_forward
- Suppose that the demand for money is given by the following equation: MD = $Y (0.25 – 0.8i) Assume that nominal income ($Y) is $5,000 billion. Determine the equilibrium level of the interest rate if the money supply is $900 billion. Suppose the central bank increases the money supply to $950 billion. Determine the new equilibrium interest rate. Suppose we have the original money supply (in part a) and that the level of nominal income increases to $6,250 billion. Determine the equilibrium interest rate.arrow_forwardSuppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?arrow_forwardIf a firm believes that their relative price has changed, then they will increase their output, since their product is more valuable (in relative price terms). Thus, the output of firms will be Y = Y +x (P - EP) where alpha is the relative increase in work driven by an increase in expected price level Thirty percent of firms can adjust their prices ex-post. If a=1, and the current price level is $200, then draw the SRAS curve around the potential output of $10,000. Then, determine the increase in price above expectation if 40% of firms are sticky-price firms, flexible price firms respond with a=0.02 and Y rises by $2400.arrow_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