a) Using the Keynesian cross model where the goods market equilibrium is determined and analyzed, graphically...
a) Using the Keynesian cross model where the goods market equilibrium is determined and analyzed, graphically derive the IS curve, and explain each step. Explain what the equilibrium in the goods market implies for the IS curve, i.e., why is the IS curve downward sloping. Also, explain what causes shifts in the IS curve
b) First, based on the analysis of the financial market equilibrium, graphically derive the LM curve. Explain what the LM curve is and explain in detail why it has its particular shape. Explain what causes shifts in the LM curve.
c) Suppose that the FED sells a large number of bonds (say, treasury securities) through open market operations. Graphically illustrate and explain in detail what effect this operation will have on the LM curve and the IS curve. Also, explain if it causes a shift in the IS and LM curve?
d) Suppose that the US government reduces government spending (G) to reduce the budget deficit (G-T>0). Graphically illustrate and explain in detail what effect this policy will have on the LM curve and the IS curve. Also, explain if it causes a shift in the IS and LM curve?
Homework Answers
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a) Using the Keynesian cross model where the goods
market equilibrium is determined and analyzed, graphically...
Q1140 points] Briefly, but not unsatisfactorily, answer the following questions. a) Using the Key...
Q1140 points] Briefly, but not unsatisfactorily, answer the following questions. a) Using the Keynesian cross model where the goods market equilibrium is determined and analyzed, graphically derive the IS curve, and explain each step. Explain what the equilibrium in the goods market implies for the IS curve, i.e., why is the IS curve downward sloping. Also, explain what causes shifts in the IS curve. b) First, based on the analysis of the financial market equilibrium, graphically derive the LM curve....
17) Graphically derive the IS curve from the goods market equilibrium. What is the IS relation?...
17) Graphically derive the IS curve from the goods market equilibrium. What is the IS relation? Explain why IS curve is downward sloping. 18) Explain in detail and graph what effect a reduction in government spending will have on: (1) the LM curve; and (2) the IS curve.
1. Use the Keynesian cross model and show graphically in which direction will equilibrium level of...
1. Use the Keynesian cross model and show graphically in which direction will equilibrium level of income (or output) change. For each of the following, write down the formula for the size of the change of income (i.e. write down the formula for ∆Y): (i) An increase in government purchases (ii) An increase in taxes (iii) An increase in government purchase and an increase in taxes of equal amount (Nb: You must draw a SEPARATE graph for parts (i) and...
Short Run Keynesian Model (30 points) Consider an economy described by the following: autonomous consumption is...
Short Run Keynesian Model (30 points) Consider an economy described by the following: autonomous consumption is 300, the marginal propensity to save is 25%, the government runs a balanced budget and also imposes a lump-sum tax of 400 on all consumers. In addition, investment is given by I = 900 + 0.25Y – 100r. The nominal money supply is 1800 and the average price level is 3. Lastly, real money demand is given by L(r,Y) = 0.25Y. a. Derive the...
Q2. In the Keynesian cross model, equilibrium in the economy is obtained where planned spending equals...
Q2. In the Keynesian cross model, equilibrium in the economy is obtained where planned spending equals actual spending. (a) Explain what planned spending and actual spending are (b) Graphically present the equilibrium condition of the economy in the Keynesian cross model. (c) Explain how the economy adjusts to equilibrium if the economy finds itself with a level of planned spending which is less than actual spending (3 marks) (d) Explain why an increase in government spending leads to a greater...
Starting with a graph of the goods market and progressing using the IS-LM diagram show graphically...
Starting with a graph of the goods market and progressing using the IS-LM diagram show graphically and explain how an increase in government spending affects overall macroeconomic equilibrium.
Financial markets and the LM relation. a) Explain why the money demand curve is downward sloping...
Financial markets and the LM relation. a) Explain why the money demand curve is downward sloping and what b) What types of policies can the central bank implement to reduce the interest c) Define the velocity of money. What effect does an increase in interest rate d) Illustrate graphically the effect of a drop in nominal income on the money e) Illustrate graphically the effect of a purchase of bonds by the Federal Reserve factor(s) cause shifts in the money...
In the simple Keynesian model, taxes do not depend on income (T = Ta). Suppose Ta...
In the simple Keynesian model, taxes do not depend on income (T
= Ta). Suppose Ta = 80 and:
C = 250 + 0.75 YD
Ip = 64
G = 100
NX = 20
A. Calculate the equilibrium GDP and show graphically. What is
the budget surplus (or deficit)? Hint: BS = T - G
B. Suppose in order to reduce the deficit, government spending
is reduced by 20 (from 100 to 80. Calculate the new equilibrium GDP
and show...
1. Labour Market. Draw a diagram of the labour market where there above the equilibrium level....
1. Labour Market. Draw a diagram of the labour market where there above the equilibrium level. Use I to denote the amount of labour to denote the amount of labour hired. bour market where the real wage is stuck note the amount of labour willing to work and L1 Now suppose there is an increase in technology that raises the demand the new demand curve and explain what happens to the and curve and explain what happens to the number...
Using either the Keynesian cross model or the market for real money balances (whichever one is...
Using either the Keynesian cross model or the market for real money balances (whichever one is appropriate), please illustrate what happens under the following circumstance. Then illustrate what happens using the IS-LM model. *Note: please place the graphs side-by-side. Finally, comment on what happens to income/output and the interest rate. A. Business confidence rises and as a result, investment in capital goods increases.
Q1140 points] Briefly, but not unsatisfactorily, answer the following questions. a) Using the Keynesian cross model where the goods market equilibrium is determined and analyzed, graphically derive the IS curve, and explain each step. Explain what the equilibrium in the goods market implies for the IS curve, i.e., why is the IS curve downward sloping. Also, explain what causes shifts in the IS curve. b) First, based on the analysis of the financial market equilibrium, graphically derive the LM curve....
Short Run Keynesian Model (30 points) Consider an economy described by the following: autonomous consumption is 300, the marginal propensity to save is 25%, the government runs a balanced budget and also imposes a lump-sum tax of 400 on all consumers. In addition, investment is given by I = 900 + 0.25Y – 100r. The nominal money supply is 1800 and the average price level is 3. Lastly, real money demand is given by L(r,Y) = 0.25Y. a. Derive the...
Financial markets and the LM relation. a) Explain why the money demand curve is downward sloping and what b) What types of policies can the central bank implement to reduce the interest c) Define the velocity of money. What effect does an increase in interest rate d) Illustrate graphically the effect of a drop in nominal income on the money e) Illustrate graphically the effect of a purchase of bonds by the Federal Reserve factor(s) cause shifts in the money...
In the simple Keynesian model, taxes do not depend on income (T
= Ta). Suppose Ta = 80 and:
C = 250 + 0.75 YD
Ip = 64
G = 100
NX = 20
A. Calculate the equilibrium GDP and show graphically. What is
the budget surplus (or deficit)? Hint: BS = T - G
B. Suppose in order to reduce the deficit, government spending
is reduced by 20 (from 100 to 80. Calculate the new equilibrium GDP
and show...
1. Labour Market. Draw a diagram of the labour market where there above the equilibrium level. Use I to denote the amount of labour to denote the amount of labour hired. bour market where the real wage is stuck note the amount of labour willing to work and L1 Now suppose there is an increase in technology that raises the demand the new demand curve and explain what happens to the and curve and explain what happens to the number...
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