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7. Graph the effects of fiscal consolidation in the IS-LM-PC model when the econ- omy is...
Use the IS-LM-PC model with an inflation-targeting central bank to answer the following short answer questions....
Use the IS-LM-PC model with an inflation-targeting central bank to answer the following short answer questions. In this question, you don’t need to explain or show the graph. But, when you’re not sure of the answer, don’t guess; instead, use the IS-LM-PC model to help you. An increase in the risk premium. Inflationary expectations are adaptive. i. What happens to inflation over time? ii. What does the central bank need to do to return to the medium-run equilibrium?
Question 8 1 pts Consider the IS-LM model. Start from an equilibrium, and assume the interest...
Question 8 1 pts Consider the IS-LM model. Start from an equilibrium, and assume the interest rate is far from the zero lower bound. Assuming that the central bank effectively pursues a policy of targeting (and maintaining) a specific interest rate ž, which of the following statements is correct? A fiscal expansion will lead to a monetary expansion Amonetary expansion will lead to a fiscal expansion More than one of the choices listed is correct A monetary expansion will lead...
a)Draw the effect this policy will have in the IS-LM framework (1 graph, Method 3). Label...
a)Draw the effect this policy will have in the IS-LM framework
(1 graph, Method 3). Label all axes, curves, the new, and the old
equilibrium.
b)Using your graph from part (a), describe the equilibrium change
in 4 variables listed below following an increase in taxes:
1. Output:
2. The interest rate:
3. Consumption:
4. Investment:
c)Following the increase inT, suppose the Fed implements
contractionary monetary policy. Draw the effects of the Fed’s
reaction in the IS-LM framework (1 graph, Method...
Assume that the economy of Cranberry Republic is characterized by the following IS-LM-PC model: Phillips curve:...
Assume that the economy of Cranberry Republic is characterized by the following IS-LM-PC model: Phillips curve: 7 = The + 0.0006(Yt-Yn) where it is the inflation rate at year t, ze is the level of inflation that people expect at the beginning of yeart, Yt is the actual level of output and Yn is the potential output. IS equation: Y = 1,450 -5,000 rt LM equation: 14 = Suppose that people form their expectation according to: TT = Tt-1 a....
Please box answers! Thank you. 11. Monetary policy and the LM curve Aa Aa The following graph shows the demand and supply of real money balances in a hypothetical economy. Use the black point (X point...
Please box answers! Thank
you.
11. Monetary policy and the LM curve Aa Aa The following graph shows the demand and supply of real money balances in a hypothetical economy. Use the black point (X point) to indicate the equilibrium in this market. Dashed drop lines will automatically extend to both axes. REAL INTEREST RATE [Percent) 10 Equilibrium Supply New Supply New Equilibrium Demand 3 0 10 20 30 40 50 60 70 80 90 100 REAL MONEY BALANCES Help...
Question 4 Discuss the following statements: (a) According to the IS-LM model how would an increase...
Question 4 Discuss the following statements: (a) According to the IS-LM model how would an increase of government spending affect equilibrium interest rates and income in a short-run closed macroeconomy. (b) According to the Classical Model of the aggregate economy, changes in aggregate demand have no effect on the amount of output produced, only the average pricelevel may be affected. (c) Crowding out through interest rates occurs when expansionary fiscal pol-icy causes interest rates to fall. (d) The relative bargaining...
onsider the following IS-LM model with a banking system: Consumption: C = 7 + 0.6YD Investment:...
onsider the following IS-LM model with a banking system: Consumption: C = 7 + 0.6YD Investment: I = 0.205Y − i Government expenditure: G = 10 Taxes: T = 10 Money demand: Md/P=Y/i Demand for reserves: Rd = 0.375Dd Demand for deposits: Dd = (1 − 0.2)Md Demand for currency: CUd = 0.2Md This says that consumers hold 20% (c = 0.2) of their money as currency and the required reserve ratio is 37.5% (θ = 0.375). Demand for central...
Use the IS-LM model to predict the short-run effects of each of the following shocks on...
Use the IS-LM model to predict the short-run effects of each of the following shocks on income, the interest rate, consumption, and investment. In each case, explain what the Bank of Canada should do to keep income at its initial level. For each of these four shocks, (1) shift the appropriate curve in the IS-LM graph to reflect how the economy will respond to the shock; (2) indicate the impact of the shock on consumption, income, interest rate, and investment...
Consult exhibit 2 then, answers the following questions: 1/ Using the IS-LM model, how does the...
Consult exhibit 2 then, answers the following questions: 1/ Using the IS-LM model, how does the spending hypothesis explain the great depression 2 2/ When relying on the IS-LM model, economists often reach the conclusion that the "Money hypothesis" is not so relevant to explain the great depression. Explain why. Exhibit 2: TABLE 11-2 What Happened During the Great Depression? Consumption Unemployment Rate (1) Real GNP 23 1930 2036 1835 1695 144.2 141.5 1396 130.4 126.1 1931 1932 1933 1934...
6. 7. Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy...
6.
7.
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation, and Yn...
Question 8 1 pts Consider the IS-LM model. Start from an equilibrium, and assume the interest rate is far from the zero lower bound. Assuming that the central bank effectively pursues a policy of targeting (and maintaining) a specific interest rate ž, which of the following statements is correct? A fiscal expansion will lead to a monetary expansion Amonetary expansion will lead to a fiscal expansion More than one of the choices listed is correct A monetary expansion will lead...
a)Draw the effect this policy will have in the IS-LM framework
(1 graph, Method 3). Label all axes, curves, the new, and the old
equilibrium.
b)Using your graph from part (a), describe the equilibrium change
in 4 variables listed below following an increase in taxes:
1. Output:
2. The interest rate:
3. Consumption:
4. Investment:
c)Following the increase inT, suppose the Fed implements
contractionary monetary policy. Draw the effects of the Fed’s
reaction in the IS-LM framework (1 graph, Method...
Assume that the economy of Cranberry Republic is characterized by the following IS-LM-PC model: Phillips curve: 7 = The + 0.0006(Yt-Yn) where it is the inflation rate at year t, ze is the level of inflation that people expect at the beginning of yeart, Yt is the actual level of output and Yn is the potential output. IS equation: Y = 1,450 -5,000 rt LM equation: 14 = Suppose that people form their expectation according to: TT = Tt-1 a....
Please box answers! Thank
you.
11. Monetary policy and the LM curve Aa Aa The following graph shows the demand and supply of real money balances in a hypothetical economy. Use the black point (X point) to indicate the equilibrium in this market. Dashed drop lines will automatically extend to both axes. REAL INTEREST RATE [Percent) 10 Equilibrium Supply New Supply New Equilibrium Demand 3 0 10 20 30 40 50 60 70 80 90 100 REAL MONEY BALANCES Help...
Use the IS-LM model to predict the short-run effects of each of the following shocks on income, the interest rate, consumption, and investment. In each case, explain what the Bank of Canada should do to keep income at its initial level. For each of these four shocks, (1) shift the appropriate curve in the IS-LM graph to reflect how the economy will respond to the shock; (2) indicate the impact of the shock on consumption, income, interest rate, and investment...
Consult exhibit 2 then, answers the following questions: 1/ Using the IS-LM model, how does the spending hypothesis explain the great depression 2 2/ When relying on the IS-LM model, economists often reach the conclusion that the "Money hypothesis" is not so relevant to explain the great depression. Explain why. Exhibit 2: TABLE 11-2 What Happened During the Great Depression? Consumption Unemployment Rate (1) Real GNP 23 1930 2036 1835 1695 144.2 141.5 1396 130.4 126.1 1931 1932 1933 1934...
6.
7.
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation, and Yn...
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