2. Use the IS-LM model to predict the short-run effects ofeach of the following shocks on income, the interest rate,consumption, and investment. In each case, explain whatthe Fed should do to keep income at its initial level. Be sureto use a graph in each of your answers.a. After a new high-speed computer chip is invented, manyfirms decide to upgrade their computer systems.b. A wave of credit card fraud increases the frequency withwhich people make transactions in cash.c. A bestseller titled Retire Rich convinces the public toincrease the percentage of their income devoted tosaving.d. The appointment of a new dovish Fed chair increasesexpected inflation.

a) In the IS-LM model, the introduction of a high-speed computer chip leads to increased investment.…

Answered: 2. Use the IS-LM model to predict the…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 15P

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1) Brief explain the reasons for the Great Recession of 2008 and 2009. 2) How do the recession shocks affect IS curve and LM curve? How does it affect interest rate r, price and output Y in the short run and long run? Please use figuresand words to illustrate your explanation. 3) How does government or Fed recover the economy in the short run. Please usefigures and words to illustrate your explanation.
The Federal Reserve expands the money supply by 5 percent.a. Use the theory of liquidity preference to illustrate in a graph theimpact of this policy on the interest rate.b. Use the model of aggregate demand and aggregate supply to illustratethe impact of this change in the interest rate on output and the pricelevel in the short run.c. When the economy makes the transition from its short-runequilibrium to its new long-run equilibrium, what will happen to theprice level?d. How will this change in the price level affect the demand for moneyand the equilibrium interest rate?e. Is this analysis consistent with the proposition that money has realeffects in the short run but is neutral in the long run?
The current Ukraine-Russia War threatens the prosperity of the global economy, and as such, the UK economy. You are working as an Economist for the HM Treasury and a panel of Members of Parliament. have asked you to provide guidance on the current situation of the economy and potential demand side and supply side policy interventions to stabilise the economy. Using economic theory, answer the following:
4. Consider the following IS-LM model: Consumption:C = 200 + .25YD Investment : I = 150 + .25Y -1000i Taxes : T = 200 Government Expenditures : G = 250 Demand for Real Money Balances : (M/P)d = 2Y -8000i Money Supply : M/P = 1600 a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.) 9-C-1+G Y= 200 0.25 (Y-200) + 150 0.25 4-1000(1) +250+ Y- 200 0.254-50+1500. 25Y- 1000i+250G 93D550-1000 b. Derive the LM relation. (Hint: Write this equation with i on the left side and everything else on the right.)
"that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money" do you agree or disagree with this statement? provide two reasons why?
c. Assume that the economy of Xenobia is at full employment. Explain how an increase in net investment will affect each of the following.i. Aggregate demandii. Long-run aggregate supplyiii. Output
a. If money supply is increased by 10, what will be the new interest rate? Round your answers to one decimal place. Pabst: 5 Numeric ResponseEdit Unavailable. 5 correct.% Kokanee: 6 Numeric ResponseEdit Unavailable. 6 correct.% b. What will be the increase in investment spending as a result of this new interest rate? Pabst: 60 Numeric ResponseEdit Unavailable. 60 incorrect. Kokanee: 50 Numeric ResponseEdit Unavailable. 50 incorrect. c. If the multiplier is 3 in each economy, what will be the increase in GDP? Pabst: Kokanee: d. In which economy would monetary policy be more effective in closing a recessionary gap? Pabst Can you please help with B, C
MP Curve 15 Curve 08 15 20 30 4 fation Rate, S Appregle Opt NMP ourve and an 15 curve are shown above Using the mutpoint curved line drawing tool, draw three points on the AD curve when interest rates equal 0.5%, 1% and 1.5% Label the line AD Carefully follow the instructions above, and only draw the required object Aggregate Demand @ 354 04 25 After plotting the final point of your mutpoint curve press the Eac key on your keyboard and the in
5:45 PM A 5 P NO fill 1.5 42 K ECF515-D-1-2021-1.docx SESSION A: CHOOSE THE BEST ANSWER 1. The IS curve represents A. the single level of output where the goods market is in equilibrium. B. the single level of output where financial markets are in equilibrium. C. the combinations of output and the interest rate where the money market is in equilibriu m D. the combinations of output and the interest rate where the goods market is in equilibriu m. 2. The IS curve will shift to the right when which of the following occurs? A. an increase in the money supply B. an increase in government spending C. a reduction in the interest rate D all of the above. 3. Which of the following occurs as the economy moves leftward along a given IS curve? A. an increase in the interest rate causes investment spending to decrease B. an increase in the interest rate causes money demand to increase C. an increase in the interest rate causes a reduction in the money supply D. a reduction in government spending…
Chapter 11: Aggregate Demand I: Building the IS-LM Model Henüz 1 2 3 cevaplanmadı 5,00 üzerinden Question: Which of the following is false? 10 11 12 15 İşaretlenmiş F Soruyu işaretle 19 20 O a. The Quantity theory assumes income level to change and Keynesian model assumes it to be fixed. Uygulamayı bitir ... Kalan süre 0:14:53 O b. The Fisher equation implies that an increase in inflation will also increase nominal interest rate since real interest rate is constant. The Quantity theory assumes real money balances to be constant but the liquidity preference (Keynes) theory assumes it to change. Od. The Quantity theory assumes nominal interest rate to be determined by price level and the liquidity preference (Keynes) theory assumes it to be determined by real interest rate. The liquidity preference (Keynes) theory implies that an increase in nominal interest rate will increase real interest rate since price level is fixed. O e.
Suppose an economy is in long-run equilibrium.a. Use the model of aggregate demand andaggregate supply to illustrate the initialequilibrium (call it point A). Be sure to includeboth short-run aggregate supply and long-runaggregate supply.b. The central bank raises the money supply by5 percent. Use your diagram to show whathappens to output and the price level as theeconomy moves from the initial equilibrium to thenew short-run equilibrium (call it point B).c. Now show the new long-run equilibrium (call itpoint C). What causes the economy to move frompoint B to point C?d. According to the sticky-wage theory of aggregatesupply, how do nominal wages at point Acompare with nominal wages at point B? How donominal wages at point A compare with nominalwages at point C?e. According to the sticky-wage theory of aggregatesupply, how do real wages at point A comparewith real wages at point B? How do real wages atpoint A compare with real wages at point C?f. Judging by the impact of the money…
Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?

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