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Q. 15 marks. If for an economy the money demand function is (M/P)' = 1000-40r, Money...
2. Phillips Curve. An economy has the following functions for its short run aggregate supply (SRAS),...
2. Phillips Curve. An economy has the following functions for its short run aggregate supply (SRAS), Okun's Law (OL), and Phillips Curve (PC): SRAS: P = EP + (1/2)(y - 3) OL: (Y-Y) = -4(u-u") PC:T = ET - (1/5)( - 6) The economy begins at its natural rate of output with a stable price level equal to $5. a.) Output is at its natural level when the price level is equal to expectations. Calculate the natural rate of output...
Consider the following extended classical economy (in which the misperceptions theory holds): AD ...
Consider the following extended classical economy (in which the misperceptions theory holds): AD SRAS Okun's Law Full employment output Natural unemployment rate Y- 300 10(MIP) Y 550 u = 0.09 Suppose that the money supply M 1,200 and that the expected price level, Pe, equals 40. What are the short-run equilibrium values of: The price level (P: 40 Enter the value rounded to one decimal place. Hint: You will need to use factoring or the quadratic formula and choose the...
Consider an economy with a natural unemployment rate, u, of 4%. The expectations-augmented Philli...
Consider an economy with a natural unemployment rate, u, of 4%. The expectations-augmented Phillips curve is Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: 2( u-u) a. Consider a two-year disinflation. In the first year actual inflation, π' is 14% and expected inflation, π.s 18%. What is the first year unemployment rate? %...
Consider the following misperceptions model of the economy. AD: Y =600 + 10(M/P) SRAS: Y=Y +P...
Consider the following misperceptions model of the economy. AD: Y =600 + 10(M/P) SRAS: Y=Y +P - pe Okun's Law: (Y - Ý )/Y = - 2ệu - 4) Let 7 =750, ū=0.05, M =600, and pe =40. a. b. What is the price level? (2%) Suppose there is an unanticipated increase in the nominal money supply to 800. What is the short-run equilibrium level of output, the unemployment rate, and the price level? (3%) When price expectations adjust fully,...
Suppose that the money demand function is (M/ P)^d = 1000-100r where r is the interest...
Suppose that the money demand function is (M/ P)^d = 1000-100r where r is the interest rate in percent. The money supply M is 1000 and the price level P is 2.(a) Graph the supply and demand for real money balances.(b) What is the equilibrium interest rate?(c) Assume the price level is xed. What happens to the equilibrium interest rate if the supply of money is raised from 1000 to 1200?(d) If the Fed wishes to raise the interest rate...
Question 1: IS-LM-AD in a closed economy (35 Marks) The following represent the key equations for...
Question 1: IS-LM-AD in a closed economy (35 Marks) The following represent the key equations for a closed economy: Md 18+0.5Y-450 Money demand C" = 6 + 0.8(Y-T)-250r 1 -33-200r u-u0.3 a) Write out the equations for the IS and LM curves for this economy, with the real Desired consumption Desired investment Initial budget position Okun's law Y-Y rate of interest (r) on the left-hand side. Next, use these relationships to find the AD curve, written with output (Y) on...
Suppose that the money demand function is (M/P)d = 800 - 50r, where r is interest...
Suppose that the money demand function is (M/P)d = 800 - 50r, where r is interest rate in percent. The money supply M is 2,000 and the price level P is fixed at 5. a. Graph the supply and demand for real money balances. b. What is equilibrium interest rate? c. What happens to the equilibrium interest rate if the supply of money is reduced from 2000 to 15000? d. If the central bank wants the interest rate to be...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
Question 3 (15 Marks): Consider a closed economy, where the price level P is constant and...
Question 3 (15 Marks): Consider a closed economy, where the price level P is constant and equal to 5.You are given the following additional information: Cd = 1,000 + 0.8(Y - T) T = 0.2Y – 100 Id = 2,000 – 1,000r G = 600 L = 20,000r M = 5,000 A. (5 Marks): What is the equilibrium level of income? What is the equilibrium level of the interest rate? Explain how you obtained your answers. B. (5 Marks): The...
Consider the economy of Hicksonia a. The consumption function is given by C = 200 +...
Consider the economy of Hicksonia a. The consumption function is given by C = 200 + 0.6(Y- T). The investment function is I = 200 - 40r. Government purchases and taxes are both 100. For this economy, graph the IS curve for r changing from 0 to 8. b. The money demand function in Hicksonia is (M/P)d = Y - 100r The money supply M is 1000 and the price level P is 2. For this economy, graph the LM...
2. Phillips Curve. An economy has the following functions for its short run aggregate supply (SRAS), Okun's Law (OL), and Phillips Curve (PC): SRAS: P = EP + (1/2)(y - 3) OL: (Y-Y) = -4(u-u") PC:T = ET - (1/5)( - 6) The economy begins at its natural rate of output with a stable price level equal to $5. a.) Output is at its natural level when the price level is equal to expectations. Calculate the natural rate of output...
Consider the following extended classical economy (in which the misperceptions theory holds): AD SRAS Okun's Law Full employment output Natural unemployment rate Y- 300 10(MIP) Y 550 u = 0.09 Suppose that the money supply M 1,200 and that the expected price level, Pe, equals 40. What are the short-run equilibrium values of: The price level (P: 40 Enter the value rounded to one decimal place. Hint: You will need to use factoring or the quadratic formula and choose the...
Consider an economy with a natural unemployment rate, u, of 4%. The expectations-augmented Phillips curve is Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: 2( u-u) a. Consider a two-year disinflation. In the first year actual inflation, π' is 14% and expected inflation, π.s 18%. What is the first year unemployment rate? %...
Consider the following misperceptions model of the economy. AD: Y =600 + 10(M/P) SRAS: Y=Y +P - pe Okun's Law: (Y - Ý )/Y = - 2ệu - 4) Let 7 =750, ū=0.05, M =600, and pe =40. a. b. What is the price level? (2%) Suppose there is an unanticipated increase in the nominal money supply to 800. What is the short-run equilibrium level of output, the unemployment rate, and the price level? (3%) When price expectations adjust fully,...
Question 1: IS-LM-AD in a closed economy (35 Marks) The following represent the key equations for a closed economy: Md 18+0.5Y-450 Money demand C" = 6 + 0.8(Y-T)-250r 1 -33-200r u-u0.3 a) Write out the equations for the IS and LM curves for this economy, with the real Desired consumption Desired investment Initial budget position Okun's law Y-Y rate of interest (r) on the left-hand side. Next, use these relationships to find the AD curve, written with output (Y) on...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
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