Consider a short-run IS-LM model where MPC =0.75. Suppose that taxes are initially given by T=1500. Suppose also that MPC = 0.75. Then, if decreases by 1000, then for any given interest rate, the IS curve shifts: O to the right by 1000. Oto the right by 4000. to the left by 1000. to the right by 3000.
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- Course: Macroeconomic - IS-LM Model PROVE MATHEMATICALLY the following: Given an increase in the proportional tax on income(t), what happens to the level of output and to the tax? Hint: remember Consumption Function (C = A + c Yd), where Yd = Y - tY + TR (t is proportional income tax in %)What is the key difference between the IS-MP-PC model and the AD/AS model? O In AD/AS model, the government can not borrow In AD/AS model, the central bank can not change the interest rate O In AD/AS model, the central bank sticks to a rule O In AD/AS model, the government can not change its expenditureConsider an economy that works acoording to the classical model, and the Fisher equation holds for the money market. In this economy the consumption function is C(Y-T)=250+0.75(Y-T), the investment function is I(r)=1000-50r, where Y is income, T is net taxes and r is real interest rate. The government spends 1100 units of output on goods and services and coolects 1000 units as taxes. The labor supply is 1000, while the capital stock is 2500 units. The production function of this economy can be described as Y=K0.5L0.5. The economy is in its long-run equilibrium. The velocity of money is 2, while nominal supply of money is 6000. a) Calculate the equilibrium interest rate of this economy. b) Calculate the price level. c) What is the real wage at which the labor market is at equilibrium? What is the nominal wage? Plzzz give answer of all questions.
- VI. Here we consider the paradox of saving one last time in the context of the AS-AD model. Suppose the economy begins with output equal to its natural level. Then there is a decrease in consumer confidence, as households attempt to increase their saving, for a given level of disposable income. a. In AS-AD and IS-LM diagrams, show the effects of the decline in consumer confidence in the short run and the medium run. Explain why curves shift in your diagrams. b. What happens to output, the interest rate, and the price level in the short run? What happens to consumption, investment, and private saving in the short run? Is it possible that the decline in consumer confidence will actually lead to a fall in private saving in the short run? c. Repeat part (b) for the medium run. Is there any paradox of saving in the medium run?Consider an economy called Xanadu for which desired aggregate consumptiondepends on income, Y. and the real interest rate, r, according toCd =100+0.7Y - 200r.Xanadu's GDP is Y = 1000 and government spending on goods and services is G=180. Xanadu's desired future capital stock is given byK* = 140 - 100ucwhere luCdenotes the user-cost of capital. The price of capital is PK =2, thephysical depreciation rate is d =0.1 and the existing capital stock is K0= 50. Trapital stock between any period t and the following period t+1 evolves accordng toKt+1 = It+(1-d)Kt where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero.Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal toA) -16B) -51C) -6D) -8Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. In this model, if lthere is an increse in both labor productivity and the marginal propensity to consume while autonomus expenditures remain unchanged, what will happen to the level of employment? a. can't say for sure b. decreses c. stays the same d. increases
- QUESTION TWOConsider the consumption function is given byC = 200 + 0.75YDWhere YD is disposable income Suppose that the economy faces an investment function of the formI = 200 – 25r.Suppose further that G =T = 100 and the money demand function takes the form(M/P) = Y – 100r.The money supply M is 1,000 and Price level P is 2Required:(i) Formulate the IS equation and the LM equation.(ii) Find the equilibrium interest rate and the equilibrium level of income. (iii) If government expenditure increases by 50, by how much does the IS curveshift? (iv) If the money supply increases by 200. How much does the LM curve shift?conomics Consider a consumption function of C = 0.75 (Y – T). a) If government spending increases by $300 and there is a tax hike of $500 to fund thisincrease, according to the IS-LM model will the IS curve shift up or down and byhow much?b) Considering your shift in the IS curve from part a, how should the Federal Reserveadjust the money supply if they want to keep interest rates constant?"Crowding-out" occurs in the IS-LM model as rising government spending requires a in the interest rate in order to the demand for money at the new equilibrium, thus planned private investment. Select one: O a. fall, keep constant, raising O b. rise, lower, raising O c. rise, raise, lowering O d. rise, keep constant, lowering
- onsider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y – T). Planned investment is 300, as are government spending and taxes. What is equilibrium Y? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation Y = C + I + G and then solve for Y.) What are equilibrium consumption, private saving, public saving, and national saving?16. According to the IS-LM model, what happens to the interest rate, income, consumption, and investment under the following circumstances? d. The government increases government purchases and taxes by equal amounts. th IC I MCOURSE: MACROECONOMICS - IS-LM MODEL Comment on the following statements:1.- Changes in government spending will have a greater effect on output when the demand for money is very sensitive to changes in the level of output. Graph 2.- Demonstrate under the assumptions of the IS-LM model the effect of having a consumption function with an exogenous component, an income-dependent part and a part that depends on the interest rate. Graph