macroeconomics
*7. Using the information given in problem 5, compute by how much the Fed must increase the money supply if it wants to avoid the crowding out of the expansionary fiscal policy described in part a of problem 6. What will be the new value of real GDP?
Homework Answers
Money supply and demand:
Where,
C represents consumption.
represents autonomous consumption.
T represents tax.
represents real demand for money.
represents real supply of money.
represents planned investment.
G represents the government expenditures.
NX represents the net exports.
a.
Increase in money supply:
In order to avoid the crowding out effect, the federal will have to increase the money supply to keep the interest rate at 5 along the IS curve, the IS curve equation is as follows.
b.
Ensuring money market equilibrium:
In order to avoid the crowding out effect, ensure money market equilibrium at the combination of interest rate and real output. So, the equilibrium level of income with respect to new IS curve is derived by substituting the value of rate of interest into the equation of Y.
Hence, the value of Y is 12,400.
Demand for money:
The demand for money is calculated by substituting the value of rate of interest and Y as follows:
Hence, the federal must increase the money supply by 100. Thus, it is from 2,750 to 2,850 in order to avoid crowding out.
Question Two: Assume the following equations summarize the structure of an economy. С C+0.7(Y-T) са 2,000...
Question Two: Assume the following equations summarize the structure of an economy. С C+0.7(Y-T) са 2,000 - 5r T 150 +0.157 (M/P)+ - 0.3Y - 10r MS/P 3,000 2,000 -10r G 4,000 - 2y NX - 1,500 -0.1 Y-5r A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it wants to avoid the crowding out of expansionary fiscal policy. Make sure...
Question Two: Assume the following equations summarize the structure of an economy. с =C+0.7(Y - T)...
Question Two: Assume the following equations summarize the structure of an economy. с =C+0.7(Y - T) Са = 2,000 - 5r T 150+ 0.15Y (M/P) = 0.3Y - 10r M/P 3,000 2,000 -10r G 4,000 - 2y NX 1,500 -0.1 Y-5r A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it wants to avoid the crowding out of expansionary fiscal policy....
Assume the following equations summarize the structure of an economy. C =Ca +0.7(Y-T) Ca = 2,000...
Assume the following equations summarize the structure of an economy. C =Ca +0.7(Y-T) Ca = 2,000 - 5r T = 150 + 0.15Y (M/P)d = 0.3Y - 10r MS/P = 3,000 i = 2,000 -10r G = 4,000- .2y NX = 1,500 - 0.1Y- 5r A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it wants to avoid the crowding out...
ca Question Two: Assume the following equations summarize the structure of an economy. с = C2...
ca Question Two: Assume the following equations summarize the structure of an economy. с = C2 +0.7(Y-T) = 2,000 - 50 T = 150+ 0.15Y (M/P) = 0.3Y - 10r M/P = 3,000 = 2,000 -10r G 4,000 - 2y NX = 1,500 -0.1 Y-5r i A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it wants to avoid the crowding...
Question Two: Assume the following equations summarize the structure of an economy. С = Ca +...
Question Two: Assume the following equations summarize the structure of an economy. С = Ca + 0.7(Y - T) Са = 2,000 - 50 T = 150 + 0.15Y (M/P)! = 0.34 - 10r MS/P 3,000 2,000 -10r G = 4,000 - .2y NX = 1,500 - 0.1 Y-5r i = A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it...
macroeconomics
macroeconomics*9. Suppose that autonomous consumption and planned investment in the economy described in problem 5 change to and . 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 the new IS curve, (c) Compared to problem 5, have autonomous consumption...
macroeconomics
*9. Suppose that autonomous consumption and planned investment in the economy described in problem 5 change to and . 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 the new IS curve, (c) Compared to problem 5,...
Question 2 Explain how the effectiveness of contractionary monetary policy (dM Fiscal policy (dg <0) depends...
Question 2
Explain how the effectiveness of contractionary monetary policy (dM Fiscal policy (dg <0) depends on the magnitude of the response of NX to in r or dNX/dr. Make sure to provide your answer with the relevant mathematical equations, and economic interpretation. points) Question Two: Assume the following equations summarize the structure of an economy. с =C, +0.7(Y - T) са = 2,000 - 50 т * 150 + 0.15Y (M/P) 0.3Y - 10r M/P 3,000 2,000 -10r G...
Below, you are provided with the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves....
Below, you are provided with the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. You will use this information to identify if the economy is experiencing a recessionary gap or an expansionary gap. You will then determine whether expansionary or contractionary fiscal policy is more desirable. 140 Price Level 138 LAS 136 SAS 134 X 132 130 AD 128 300 350 400 450 500 550 600 Real GDP (in billions) Part 1: Identify the value of Potential GDP...
Macroeconomics Monetary Policy Questions The below information shows that economy needs corrective actions by the Central...
Macroeconomics Monetary Policy Questions
The below information shows that economy needs corrective actions by the Central Bank, which decided to use monetary policy. Year Actual Real GDP Potential GDP Price Level 2015 15.6 billion 15.8 billion 97 Answer the below questions: 1. If the Central Bank wants to keep real GDP at its potential level, should it use an expansionary or a contractionary monetary policy? 2. Explain the mechanism of that policy. Use the graph of Money demand and supply.
Question Two: Assume the following equations summarize the structure of an economy. С C+0.7(Y-T) са 2,000 - 5r T 150 +0.157 (M/P)+ - 0.3Y - 10r MS/P 3,000 2,000 -10r G 4,000 - 2y NX - 1,500 -0.1 Y-5r A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it wants to avoid the crowding out of expansionary fiscal policy. Make sure...
Question Two: Assume the following equations summarize the structure of an economy. с =C+0.7(Y - T) Са = 2,000 - 5r T 150+ 0.15Y (M/P) = 0.3Y - 10r M/P 3,000 2,000 -10r G 4,000 - 2y NX 1,500 -0.1 Y-5r A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it wants to avoid the crowding out of expansionary fiscal policy....
ca Question Two: Assume the following equations summarize the structure of an economy. с = C2 +0.7(Y-T) = 2,000 - 50 T = 150+ 0.15Y (M/P) = 0.3Y - 10r M/P = 3,000 = 2,000 -10r G 4,000 - 2y NX = 1,500 -0.1 Y-5r i A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it wants to avoid the crowding...
Question Two: Assume the following equations summarize the structure of an economy. С = Ca + 0.7(Y - T) Са = 2,000 - 50 T = 150 + 0.15Y (M/P)! = 0.34 - 10r MS/P 3,000 2,000 -10r G = 4,000 - .2y NX = 1,500 - 0.1 Y-5r i = A. Calculate the equilibrium real output (Y) and (r). B. If government spending increases by 100, compute by how much the fed must increase the money supply if it...
Question 2
Explain how the effectiveness of contractionary monetary policy (dM Fiscal policy (dg <0) depends on the magnitude of the response of NX to in r or dNX/dr. Make sure to provide your answer with the relevant mathematical equations, and economic interpretation. points) Question Two: Assume the following equations summarize the structure of an economy. с =C, +0.7(Y - T) са = 2,000 - 50 т * 150 + 0.15Y (M/P) 0.3Y - 10r M/P 3,000 2,000 -10r G...
Below, you are provided with the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. You will use this information to identify if the economy is experiencing a recessionary gap or an expansionary gap. You will then determine whether expansionary or contractionary fiscal policy is more desirable. 140 Price Level 138 LAS 136 SAS 134 X 132 130 AD 128 300 350 400 450 500 550 600 Real GDP (in billions) Part 1: Identify the value of Potential GDP...
Macroeconomics Monetary Policy Questions
The below information shows that economy needs corrective actions by the Central Bank, which decided to use monetary policy. Year Actual Real GDP Potential GDP Price Level 2015 15.6 billion 15.8 billion 97 Answer the below questions: 1. If the Central Bank wants to keep real GDP at its potential level, should it use an expansionary or a contractionary monetary policy? 2. Explain the mechanism of that policy. Use the graph of Money demand and supply.
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