Question

 

Refer to the table for Moola given below to answer the following questions Actual Real GDP at Money Supply Demand Money Interest Investment at Interest (Rate Shown) Potential Real Interest (Rate Rate GDP Shown) $500 500 500 500 500 $800 700 600 500 3% | $ 4%)$ 5% | $ 6%) $ 7% $ $350 350 350 350 350 $390 370 350 330 310 70 60 40 30

Refer to the table for Moola given below to answer the following questions

Enter answers as whole numbers

a. What is the equilibrium interest rate in Moola?... percent.

b. What is the level of investment at the equilibrium interest rate? $...?

c. Is there either a recessionary output gap (negative GDP gap) or an inflationary output gap (positive GDP gap) at the equilibrium interest rate and, if either, what is the amount?

Recessionary output or Gap Inflationary output gap of $....?

d. Given money demand, by how much would the Moola central bank need to change the money supply to close the output gap?

Increase or Decrease the money supply by $....?

e. What is the (expenditure) multiplier in Moola?

Answer 1

(a) The equilibrium interest rate in Moola is 6% as money demand=money supply.

(b) The level of investment at equlibrium interest rate is $40.

(c) There is a recessionary output gap at the equlibrium interest rate , that is , a negative GDP to the tune of 20.

(d) Given money demand, the Moola central bank need to increase the money supply by $100 to close the output gap.

(e) The expenditure multiplier is Δoutput/Δinvestment ,i.e., 2