EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Question
Chapter 9, Problem 2NP
a)
To determine
To describe: The real interest rate is to be calculated where M = 6000,
b)
To determine
To describe: The real interest rate is to be calculated where M = 6600 and the graph of LM curve is also to be drawn. This graph is also to be compared with the above graph.
c)
To determine
To describe: The real interest rate is to be calculated where M = 6000,
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In a particular economy the real money demand function is
Md/P = 300 +0.1Y - 10000i
Assume that M = 6000, P = 2, and πe = 0.02.
a. What is the real interest rate, r, that clears the asset market when Y = 8000? When Y = 9000? Graph the LM curve.
b. Repeat Part (a) for M = 6600. How does the LM curve in this case compare with the LM curve in Part (a)?
c. Use M = 6000 again and repeat Part (a) for πe = 0.03. Compare the LM curve in this case with the one in Part (a).
Is an increase in real interest rate always proportional to an increase in the growth rate of money supply (long run)?
Economics
Suppose that the effects of COVID-19 on the economy can be thought of as a permanent negative productivity shock, i.e., a permanent decrease of the production owing to lower total factor productivity.
What does the model predict will happen to the following variables: (1) real interest rate, (2) real output), (3) real consumption, (4) real investment, (5) labor input? For each variable explain why COVID-19 would have the predicted effect.
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