Effects on different economic variable under different condition using IS-LM model.

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Chapter 12, Problem 1NP

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To Evaluate: Effects on different economic variable under different condition using IS-LM model.

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QUESTION 7 Consider the following Taylor rule i=0.02+0.5y+0.5(n-2% ) where y is the percentage difference between the actual output and its full-employment level, while T is inflation over the last 12 months. The evolution of the economy is described by the following data: Full-emp't output Actual output Price level January, 2050 February, 2050 March, 2050 100.00 100.00 100.00 100.00 101.41 99.52 100.00 102.31 104.71 April, 2050 Маy, 2050 June, 2050 100.00 101.31 102.58 100.00 100.10 99.64 100.00 101.89 100.07 July, 2050 August, 2050 September, 2050 October, 2050 100.00 100.55 100.71 100.00 100.83 99.20 100.00 99.75 98.40 100.00 99.95 101.82 November, 2050 100.00 98.54 98.83 December, 2050 100.00 97.52 98.68 January, 2051 100.00 97.43 98.10 According to the Taylor rune, in January 2051 the central bank must have set the interest rate at Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that…

Consider the following extended classical economy (in which the misperceptions theory holds): AD Y= 300 + 10 SRAS Y=Y +P-p° Full-employment output Y = 800 Natural unemployment rate u=0.04 a. Suppose that the money supply M = 1000 and the expected price level p° = 20. %! The short-run equilibrium value of output Y is 800, and the short-run equilibrium value of the price level P is 20. (Type integers or decimals rounded to two decimal places as needed.) The long-run equilibrium value of output Y is . and the long-run equilibrium value of the price level P is (Type integers or decimals rounded to two decimal places as needed.)

=0. An economy is described by the following equations: AD: SRAS: Okun's law: Y = 4000 + 2(M/P) Y = ybar + 100(P-P) (Y-ybar)/ybar =-2(u-ubar). Assume ybar 6000 and ubar=0.05. = A) Suppose that the nominal money supply has long been at M = 4000 and is expected by the public to remain constant forever. The equilibrium value of P is The equilibrium value of P is, The equilibrium value of Y is, The equilibrium value of u is The equilibrium value of x is, (2 points each) B) A totally unexpected increase in in the money supply occurs, raising it from 4000 to 5250. [Part B is for extra credit] The short run equilibrium value of P is The short run equilibrium value of Pe is_ The short run equilibrium value of Y is The short run equilibrium value of u is. The value of unanticipated inflation, which is defined as (P-P)/P, is, The value of the slope of the short-run Phillips curve is (2 points each)