Consider an AD-AS model with AD curve Y - Y* = −ay(n − ñ*) + €d π = π² + ß(Y - Y*) + €s with parameter values a = 2, y = 1, p = 1 inflation target * = 0.01 and potential output normalised to Y* = : 1. Starting from a long-run equilibrium with ² = *, suppose there is a temp €s = 0.05. Which of the following is FALSE? In the short run inflation is 1% above target
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- Consider the following IS-LM model: C = 201+0.44YD /= 147+0.25Y-1,043/ G= 313 T = 1,2 MIP = 250 0.04 1.9Y-7,558/ The IS equation is determined to be Y=1777.42-3364.521 The LM equation is given as /=0.04 Initial equilibrium values of Y, C, I, and the real money supply are calculated as Y = 1,643 C=814 /=516 M/P = 2,819 A. the real demand for money rises. OB. equilibrium consumption increases. Now suppose that the central bank cuts the interest rate to 2%. In a graph of the IS-LM model, this causes the LM curve to shift downward (Round your response to the nearest integer.) Following the change in the interest rate to 2%, the value of equilibrium real output becomes Following the change in the interest rate to 2%, the values of the new equilibrium C and/are: C = (Round your responses to the nearest integer.) /= (Round your responses to the nearest integer.) Which of the following statements is not consistent with the effects of an expansionary monetary policy? As the interest rate falls,…Upon the 'multiplier effect' in the Keynes effective demand model, if the investment (I) is increased by 10 trillion yen, how much would the GDP (output) be increased additionally? Assume that the propensity to consume is 0.6 and the other exogenous factors remain unchanged.If the AS/AD Equilibrium level of Real GDP is greater than the Full Employment Level of Real GDP, the economy is said to be operating in the
- Relating DSGE and AS/AD for a shock to government purchases: Consider thecomplete dynamic response of the economy to a temporary rise in governmentpurchases in the AS/AD framework.There is an inflationary gap of $500 m in the full SR model, IS-LM; and I=450 + 0.25Y-1500i; C=350+.65 YD. Calculate the required to policy and show what will happen, cet. par., in the appropriate graph.Discuss in detail the limitations of the IS-LM model. Why is it unrealistic for todays economies
- In this problem you will work with the IS-MP model to calculate a macroeconomic equilibrium using algebra. The steps are: 1) find the IS equation 2) find the MP equation 3) combine them by substituting the r value from the MP equation into the IS equation Assume C = 1 + 0.75Y - 0.5T - 25r, I = 19 - 75r, G = 12, T = 14, the average FFR = 0.05, expected inflation is 3%, the risk premium is 4%, and potential output is 80. What is the output gap in the macroeconomic equilibrium?In a linear aggregate demand model: A lower tax rate leads to a new equilibrium at higher output by shifting the AD curve upwards. Oc_1(1-t) + m is the slope of the AD line in the 45-degree diagram. 1/(1 - c_1(1-t) + m) is the size of the multipler. None of these are true.Assume a Keynesian model of a small open economy. The world interest rate is given rw = 0.05. Money demand is given by the equation: Md = 20+0.5Y –40rw. Money supply is 800. The marginal propensity of consumption is 0.8. (a) Find the equation for the LM curve. (b) Find Y . (c) Assume the economy has flexible exchange rates and prices. Suppose the government were to cut spending by 5. i. How much and in what direction does the IS shift? Be precise. ii. What is the new value of Y ? 1/3 Due on Monday, 11/16 @ 9:00 a.m. iii. Has the exchange rate appreciated, depreciated, or stayed the same? (d) Assume the economy has fixed exchange rates and prices. Suppose the government were to cut spending by 5. i. How much and in what direction does the IS shift? Be precise. ii. What is the new value of Y ? iii. What is the new value of the Money supply?
- The economy of Uplandia is currently in an economic situation shown by point E₁ on the graph at right. Now suppose that the level of autonomous investment expenditures increases by $500. The AD curve shifts rightward from AD to AD₁ as shown. The value of the simple multiplier in Uplandia is equal to (Round your response to the nearest whole number.) ………….. Price Level (P) 1,000- 900- 800- 700- 600- 500- 400- 300- 200- 100- 0- 0 Aggregate Demand 2,000 Eo E₁ 4,000 6,000 Real GDP (Y) AD₁ ADO 8,000 10,000Graphically show the short- and long-run impact of your recommendation of 25 bps rate hike using the AD-AS model (Assume you are operating below full capacity before your recommendations are implemented). (a) Short-term (b)Long-termAccording to the Keynesian cross model if the marginal propensity to consume is 2/3, cut in taxes of 120 Billion increases equilibrium income by a) 160 Billion b) 180 Billion C) 240 Billion d) 360 Billion