Consider a closed economy with the following features: (i) Consumption depends upon disposable income and real...
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Consider a closed economy with the following features: (i) Consumption depends upon disposable income and real interest rate. (ii) Investment depends upon real interest rate (iii) Tax system is combination of lumpsum taxes as well as a proportional tax rate (iv) Government expenditure are exogenous (v) There are two components to money demand – transaction demand for money and speculative demand for money (vi) Money supply is determined by the central bank exogenously (vii) Price level is exogenously given. ₁ (a) Please make appropriate and valid defensible assumptions for the parameters of your economy and represent the economy using the IS-LM equations. (b) Find the equilibrium for the economy and explain it both algebraically and graphically. (c) Derive the fiscal multipliers for the economy. (Hint: First identify the number of fiscal instruments in the economy, and then derive the multiplier for each of those instruments). (d) For each of the above fiscal multipliers, intuitively explain the change in the output and the real interest rate. You may use a graph, if you think that will be useful for your explanation. Consider a closed economy with the following features: (i) Consumption depends upon disposable income and real interest rate. (ii) Investment depends upon real interest rate (iii) Tax system is combination of lumpsum taxes as well as a proportional tax rate (iv) Government expenditure are exogenous (v) There are two components to money demand – transaction demand for money and speculative demand for money (vi) Money supply is determined by the central bank exogenously (vii) Price level is exogenously given. ₁ (a) Please make appropriate and valid defensible assumptions for the parameters of your economy and represent the economy using the IS-LM equations. (b) Find the equilibrium for the economy and explain it both algebraically and graphically. (c) Derive the fiscal multipliers for the economy. (Hint: First identify the number of fiscal instruments in the economy, and then derive the multiplier for each of those instruments). (d) For each of the above fiscal multipliers, intuitively explain the change in the output and the real interest rate. You may use a graph, if you think that will be useful for your explanation.
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Answer rating: 100% (QA)
a Please make appropriate and valid def ensible assumptions for the parameters of your economy and represent the economy using the IS LM equations ANS WER Parameters Consumption C a b Y d c R where Y ... View the full answer
Related Book For
Macroeconomics
ISBN: 978-1464168505
5th Canadian Edition
Authors: N. Gregory Mankiw, William M. Scarth
Posted Date:
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