Homework Answers
D) The IS curve is a vertical line and monetary policy does not affect output in the IS-LM mod
it is assumed that investment is not responsive to the interest rate and the slope of the IS curve is infinite and that the intercept is also infinite. so IS curve is a vertical line. Monetary policy leads to shifts in the LM curve, and shifts in LM do not change output at all since the equilibrium point always remains on the vertical IS curve.
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Suppose that investment (I) and consumption (C) in the goods market is not responsive to the...
Suppose that autonomous consumption and planned investment in the economy described in problem 5 change to...
Suppose that autonomous consumption and planned investment in the economy described in problem 5 change to Ca = 470 − 15r and Ip = 1,700 − 60r. All other aspects of the structure of the commodity and the money markets are as described in problem 5.(a) Derive the equation for the new IS curve and verify that the equilibrium interest rate and real output are the same as you computed in parts 5g and 5h, respectively.(b) Calculate the slope of...
Question1 Consider the following economy of Hicksonia. 1. The consumption function is given by C ...
Need the answer from question 5 to 9, do not put the answer from
1 to 4, please.
Question1 Consider the following economy of Hicksonia. 1. The consumption function is given by C 200 + 0.75(Y-T). The investment function is 1 = 200-2500. Government purchases and taxes are both 100. Derive the IS curve 2. The money demand function in Hicksonia is (Md/P)-Y-10000 The money supply (M) is 1,000. Derive the LM curve under an arbitrary value of P (Hint:...
4. (25%) Suppose that policy makers want to raise investment but keep out- put and consumption...
4. (25%) Suppose that policy makers want to raise investment but keep out- put and consumption unchanged. (a) Analyze whether - and if so, how - these targets can be achieved using a combination of fiscal and monetary policy. i. what must happen to interest rates to raise investment if output is unchanged? ii. what must happen to government spending and taxes to keep output and consumption unchanged if investment increases? (b) Illustrate the analysis using an IS-LM diagram
- Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against...
- Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the...
Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the...
Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate (on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the demand...
1) During a recession a. both consumption and investment fall, but consumption falls more b. both...
1) During a recession a. both consumption and investment fall, but consumption falls more b. both consumption and investment fall, but investment falls more c. consumption rises and investment falls d. investment falls and consumption rises 2) The Fed does monetary policy by raising the money supply with the hope of raising real GDP. In the long run, the result will be a. only an increase in prices b. successful as long as the Fed sells bonds in the open...
Determine whether each of the following statements is true or false, and explain why
Determine whether each of the following statements is true or false, and explain why. For each true statement, discuss the impact of monetary and fiscal policy in that special case.a. If investment does not depend on the interest rate, the LM curve is horizontal.b. If investment does not depend on the interest rate, the IS curve is vertical.c. If money demand does not depend on the interest rate, the IS curve is horizontal.d. If money demand does not depend on...
t t Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted...
t t Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than...
If money demand does not depend on the interest rate, then the LM curve is ______...
If money demand does not depend on the interest rate, then the LM curve is ______ and ______ policy has no effect on output. A. horizontal; monetary B. vertical; monetary C. horizontal; fiscal D. vertical; fiscal
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...
Need the answer from question 5 to 9, do not put the answer from
1 to 4, please.
Question1 Consider the following economy of Hicksonia. 1. The consumption function is given by C 200 + 0.75(Y-T). The investment function is 1 = 200-2500. Government purchases and taxes are both 100. Derive the IS curve 2. The money demand function in Hicksonia is (Md/P)-Y-10000 The money supply (M) is 1,000. Derive the LM curve under an arbitrary value of P (Hint:...
4. (25%) Suppose that policy makers want to raise investment but keep out- put and consumption unchanged. (a) Analyze whether - and if so, how - these targets can be achieved using a combination of fiscal and monetary policy. i. what must happen to interest rates to raise investment if output is unchanged? ii. what must happen to government spending and taxes to keep output and consumption unchanged if investment increases? (b) Illustrate the analysis using an IS-LM diagram
- Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the...
Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate (on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the demand...
t t Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than...
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