3. Suppose a wave of credit card fraud causes consumers to use cash more frequently in...
3. Suppose a wave of credit card fraud causes consumers to use cash more frequently in transactions. Use the liquidity preference model to show how these events shift the LM curve. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values
Homework Answers
This event raises velocity of money in circulation. With more cash demanded, the demand for money increases. In the market for real balances, money demand curve shifts up and this causes the rate of interest to increase.
Higher rate of interest reduces the investment spending and so GDP is reduced. In the IS-LM model LM curve shifts to the left. As rate of interest is increased, real GDP is reduced.
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3. Suppose a wave of credit card fraud causes consumers to use
cash more frequently in...
Use the diagram of the Keynesian cross or loanable funds model to show how an increase...
Use the diagram of the Keynesian cross or loanable funds model to show how an increase in taxes shifts the IS curve. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values
Use the diagram of the Keynesian cross or loanable funds model to show how an increase in taxes shifts the IS curve. Be...
Use the diagram of the Keynesian cross or loanable funds model to show how an increase in taxes shifts the IS curve. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values.
Use a graph of the Keynesian cross to show the effects of an increase in exogenous...
Use a graph of the Keynesian cross to show the effects of an increase in exogenous planned investment on the equilibrium level of income/output. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values.
1. Use a graph of the Keynesian cross to show the effects of an increase in...
1. Use a graph of the Keynesian cross to show the effects of an increase in exogenous planned investment on the equilibrium level of income/output. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values.
4. Using the long-run model of the economy developed in Chapter 3, explain and/or show graphically...
4. Using the long-run model of the economy developed in Chapter 3, explain and/or show graphically the impact of increased investment demand has on the economy. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction curves shift; and v. the terminal equilibrium values. Be sure to explain what happens to: i. the real interest rate; ii. national saving; iii. investment; iv. consumption; and v. output. 5. Using the long-run model of...
Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using...
Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using the long-run model of the economy, graphically illustrate the impact of the equal reductions in spending and taxes. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. The direction the curves shift; and v. the terminal equilibrium values. b. State in words what happens to: i. the real interest rate; ii. national saving; iii. investment; iv. consumption;...
Consider the IS-LM and aggregate demand/aggregate supply model of Chapters 11 and 12. Consider a reduction...
Consider the IS-LM and aggregate demand/aggregate supply model of Chapters 11 and 12. Consider a reduction in the level of taxes, starting from an initial situation in which output is equal to its natural level. a) Depict the short-run effects of the reduction in T using 3 graphs: one for the market for goods and services, one for the IS-LM curves, and one for the Aggregate Demand and Supply curves. How do the new short-run equilibrium values of r, Y...
* Problems: be sure to include any steps that support your answer for partial points. *...
* Problems: be sure to include any steps that support your answer for partial points. * When you draw a graph to show a model, be sure to label: i. the axes; ii, the curves: iii. the in values: iv. The direction curves shift and v. the terminal equilibrium values. 1. The Fed decides to reduce the discount rate. (13pts) 1) What would happen to the interest rate? Use a model to explain your answer. (5pts) 2) What kind of...
Suppose that laws are passed banning labor unions and that resulting lower labor costs are passed...
Suppose that laws are passed banning labor unions and that resulting lower labor costs are passed along to consumers in the form of lower prices. (a) Identity the type of shock. Demand shock or supply shock? Favorable or adverse? Explain. (0.5 points) (b) Use the aggregate demand–aggregate supply model to illustrate graphically the impact in the short run and the long run of this shock. Be sure to label: i. the axes; ii. the curves (LRAS, SRAS and AD); iii....
Assume the Chilean economy can be described as follows: C=200+0.25Yd l=150+0.25Y-1000r G=250 T=200 (M/P)d= L(r, Y)...
Assume the Chilean economy can be described as follows: C=200+0.25Yd l=150+0.25Y-1000r G=250 T=200 (M/P)d= L(r, Y) = 2Y- 8000r Ms=1840 P=1 a) Derive the equation for the LM curve. ( 1 .5 mk) b) Determine the slope af the LM curve. (0.5 mark) c) Derive the equation for the IS curve (I.S mk) d) Determine the slope ofthe IS curve. (0.5 mk) c) Compute the quilibrium values of income (Y) and interest rate (R)? (2 marks) [) Calculate the value...
* Problems: be sure to include any steps that support your answer for partial points. * When you draw a graph to show a model, be sure to label: i. the axes; ii, the curves: iii. the in values: iv. The direction curves shift and v. the terminal equilibrium values. 1. The Fed decides to reduce the discount rate. (13pts) 1) What would happen to the interest rate? Use a model to explain your answer. (5pts) 2) What kind of...
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