Consider the following numerical example of the IS-LM model: C = 800+ 0.80YD a. Derive the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider the following numerical example of the IS-LM model: C = 800+ 0.80YD a. Derive the IS relation. I= 570+ 0.10Y - 500i G = 1000 T = 700 b. The central bank sets an interest rate of 3%. How is that decision represented in the equations? Show this on an diagram with IS-LM curves and explain the outcome of this decision. M c. What is the level of real money supply when the interest rate is 2%? Use the following expression and show the outcome on a diagram with money demand and supply curves and explain what type of monetary policy this is and its impact on the output and economy: = 1.1 Y 120, 000 i d.Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. e. Now suppose that the central bank decreases the interest rate to 1%. Explain in detail what type 2 of policy employed here and the entire process of how the central bank can increase the interest rate and how does this change the LM curve? Show the result on a diagram and well as solve for Y, I, and C, and describe in words the effects of this monetary policy. What is the new equilibrium value of M/P supply? Show this new equilibrium value on a diagram. f. Return to the initial situation in which the interest rate set by the central bank is 3%. Now suppose that government spending increases to G = 1500 and taxes increases to T = 1000. Explain what type of policy is and summarize the effects of this policy on Y, I, and C. What is the effect of this policy on the real money supply? Show the outcome of these policies on both Keynesian Cross Model and IS-LM curve. Consider the following numerical example of the IS-LM model: C = 800+ 0.80YD a. Derive the IS relation. I= 570+ 0.10Y - 500i G = 1000 T = 700 b. The central bank sets an interest rate of 3%. How is that decision represented in the equations? Show this on an diagram with IS-LM curves and explain the outcome of this decision. M c. What is the level of real money supply when the interest rate is 2%? Use the following expression and show the outcome on a diagram with money demand and supply curves and explain what type of monetary policy this is and its impact on the output and economy: = 1.1 Y 120, 000 i d.Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. e. Now suppose that the central bank decreases the interest rate to 1%. Explain in detail what type 2 of policy employed here and the entire process of how the central bank can increase the interest rate and how does this change the LM curve? Show the result on a diagram and well as solve for Y, I, and C, and describe in words the effects of this monetary policy. What is the new equilibrium value of M/P supply? Show this new equilibrium value on a diagram. f. Return to the initial situation in which the interest rate set by the central bank is 3%. Now suppose that government spending increases to G = 1500 and taxes increases to T = 1000. Explain what type of policy is and summarize the effects of this policy on Y, I, and C. What is the effect of this policy on the real money supply? Show the outcome of these policies on both Keynesian Cross Model and IS-LM curve.
Expert Answer:
Related Book For
Posted Date:
Students also viewed these economics questions
-
Toronto General Hospital is trying to improve the patient experience by improving food services with tasty, inviting patient meals that are also healthful. A questionnaire accompanies each meal...
-
Detroit Central Hospital is trying to improve its image by providing a positive experience for its patients and their relatives. Part of the image program involves providing tasty, inviting patient...
-
Houston North Hospital is trying to improve its image by providing a positive experience for its patients and their relatives. Part of the image program involves providing tasty, inviting patient...
-
Ebrahim Patel is a wholesaler who uses the periodic inventory system to account for inventory. Transactions for February: 1 Bought inventory from Rich Traders for R5 000 on credit. 2 Sold inventory...
-
Hope Hospital purchased a special X-ray machine. The machine, which cost $311,560, was expected to last ten years, with an estimated residual value of $31,560. After two years of operation (and...
-
Dale Emerson served as the chief financial officer for Reliant Electric Company, a distributor of electricity serving portions of Montana and North Dakota. Reliant was in the final stages of planning...
-
Why change product line depth?
-
Amy Gargulo and Paula Frisken operated as a partnership Kiddies Korner, an infants' and children's clothing store. They operated the business very successfully for three years, with both Paula and...
-
ation.com/ext/map/index.html?_con=con&external_browser=0&launchUrl=https%253A%252F Maps Pearson Troubles... Saved -16 Required information The following selected account balances are provided for...
-
The 450-room Hotel Fernando is a four-star full-service hotel in San Petresco. It is highly regarded among both locals and tourists. Its service standards and ameni- ties complement its exquisite...
-
You buy an eight-year maturity bond that has a 8% current yield and a 6% coupon (paid annually). In one year, the yield to maturity falls to 7%. What is your holding-period return? Express your...
-
Describe in your own words how you would expect the data points on a scatterplot to be distributed if the following features were present (i.e. for each part, explain how the feature would look on a...
-
imagine this experimental setup: One temperature probe is in embedded in a small block of frozen sugar water at -20. The frozen sugar water is in a small test tube The melting/freezing point of this...
-
Question 2: (40 points: 10 each) During September, Sweet Foods manufactures a single product. The Company's material purchases amounted to 9,000 pounds at a price of $9.80 per pound. Actual costs...
-
E12-23 (Algo) (Supplement 12B) Preparing a Statement of Cash Flows, Indirect Method: T-Account Approach [LO 12-S2] Golf Goods Incorporated is a regional and online golf equipment retailer. The...
-
A symmetric compound channel in over bank flow has a main channel with a bottom width of 30 m, side slopes of 1:1, and a flow depth of 3m. The floodplains on either side of the main channel are both...
-
Exercise 4 . 1 The Excel spreadsheet Exercise 4 . 1 FX model gives crosscurrency exchange rates among the currencies USD, EUR, GBP , AUD, and JPY . Use a linear programming model to detect if these...
-
What does non-recourse financing mean?
-
What impact does a decrease in setup time have on EOQ?
-
Elizabeth Irwins design team has proposed the following system with component reliabilities as indicated: What is the reliability of thesystem? R= 0.85 |- R 0.90 A0.90 R= 0.85
-
How does TPS contribute to competitive advantage?
-
Discuss the qualitative characteristics of accounting information. AppendixLO1
-
Identify and compute ratios for analyzing a company's liquidity and solvency using a statement of cash flows. AppendixLO1
-
Explain the meaning of generally accepted accounting principles and describe the basic objective of financial reporting. AppendixLO1
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App