Consider an economy described by the following:C= $4 trillionĪG= $1.5 trillion== $3.0 trillionTNX= $3.0 trillion= $1.0 trillionF= 0mpc= 0.8d= 0.35x= 0.15λ= 0.5г= 2a.Derive expressions for the MP curve and the AD curve.b. Calculate the real interest rate and aggregate output when л=2 and π= 4.c. Draw a graph of the MP curve and the AD curve, labelling the points given in part (b).

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Answered: Consider an economy described by the…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 52CTQ: If foreign wealth-holders decide that the United States is the safest place to invest their savings,...

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Assume the following model of the economy C = 60 +0.75(Y – T) I = 45 – 5r G = 40 and T = 40 MS 110 P = 1 (fixed) (M/P)D = 0.5Y – 5r, - where C=consumption spending, Y=income, |=investment spending, r=the interest rate, G=government spending, T=taxes. MS=the money supply, P=the price level, and (M/P)D is real money demand. (a) Write the equations for the IS and LM curves and sketch these functions. Solve for the equilibrium values of Y and r and include these values in the graph.
QUESTION 26 Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. "2 "1 MS -MD 2 -MD₁ 1 P2 P₁ 1₂2 1₁ AD Refer to Figure 34-2. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the a. interest-rate effect. b. Fisher effect. c. exchange-rate effect. d. wealth effect.
Consider a closed economy in which: C=250+0.8 (Y-T)I=400−30 rT=150G=220Y=C+I+G where Y is GDP, C is consumption, I is investment, T is taxes, G is government purchases, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 3,000. a. Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 3 percent, so r = 3. Solve for GDP (Y). Y=______ b. How much is the private saving (SPVT)? SPVT=______ c. How much is the government spending multiplier (k)? k=______ d. Assuming no change in monetary policy, what change in government purchases (ΔG) would restore full employment? ΔG=______ e. Assuming no change in fiscal policy, what change in the interest rate (Δr) would restore full employment? Δr=______
In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.
Consider an economy described by the following data:C = $3.25 trillionI = $1.3 trillionG = $3.5 trillionT = $3.0 trillionNX = - $1.0 trillionf = 1mpc = 0.75d = 0.3x = 0.1a. Derive simplified expressions for the consumptionfunction, the investment function, and the net exportfunction.b. Derive an expression for the IS curve.c. If the real interest rate is r = 2, what is equilibriumoutput? If r = 5, what is equilibrium output?d. Draw a graph of the IS curve showing the answersfrom part (c) above.e. If government purchases increase to $4.2 trillion,what will happen to equilibrium output at r = 2?What will happen to equilibrium output at r = 5?Show the effect of the increase in government purchases in your graph from part (d).
Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y By how much will the equilibrium level of income (Y) and the interest rate (i) change, if the Fed responds to an increase in government purchases of 160 by increasing nominal money supply to M' = 1,100?
The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL (CPI) 160 150 140 130 120 110 100 90 80 0 Aggregate Demand 100 200 300 400 500 REAL GDP (Billions of dollars) 600 700 800 ? Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. A higher price level makes domestically produced goods more expensive than foreign goods. A lower price level leads to a lower interest rate. A lower price level increases the consumption of complementary goods. As the aggregate price level rises, the purchasing power of households' saving balances will demanded to This phenomenon is known as the effect. , causing the quantity of output
The SARB interest rate has been increasing since the beginning of this year. If the Monetary Policy Committee (MPC) decides to grow the economy. What impact does this have on the borrower, on wages and net exports? What is the overall effect on the economy? Use the relevant graphs.
Consider the following economy : C=100+0.8 Yd I= 50 – 25i G= T= 50 =200 P %3D Md= Y – 25 i 1. Calculate the IS and LM curves. 2. Calculate the equilibrium levels of output and interest.
Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y a. Derive the equilibrium values of consumption (C) and money demand (md). b. How much investment (I) will be crowded out if the government increases its purchases by DG = 160 and nominal money supply (M) remains unchanged? c. By how much will the equilibrium level of income (Y) and the interest rate (i) change, if the Fed responds to this increase in government purchases by increasing nominal money supply to M' = 1,100?
Assume the economy starts at full-employment. There is a global pandemic. Which of the following will happen as a result of the pandemic (only the pandemic): Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a interest rates increase, aggregate expenditures decrease, prices decrease and output decreases b interest rates decrease, aggregate expenditures increase, prices increase and output decreases interest rates do not initially change, aggregate expenditures decrease, prices decrease and output decreases d interest rates do not initially change, aggregate expenditures increase, prices increase and output increases
If the government increases the income tax rate (t) and the central bank responds by increasing the supply of money, how will investment (I), saving (S) and money demand (md) be affected? Explain your answer with the help of an IS-LM diagram.

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