d. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the short- run equilibrium. e. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the long- run (general) equilibrium.

d. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the short- run equilibrium. e. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the long- run (general) equilibrium.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section: Chapter Questions

Problem 1WNG

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Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms. a. How does the misperception theory work? b. Which of the three markets is first affected (labor, goods, or asset market)? Explain and show graphically how this market is affected by an unanticipated increase in the nominal money supply. c. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the short-run equilibrium. d. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the long-run (general) equilibrium.
In the extended version of the classical model, based on the misperceptions theory. a. Graphically show the effect of an unanticipated increase in money supply using the AS-AD model. Make sure to label the short-run equilibrium point. b. Repeat part (a). This time, assume that the public was anticipating this increase in money supply. c. Is the short-run equilibrium in part (b) point the same as in part (a). Why or why not?
In the full SR model, IS-LM, we know that if to falls, cet. par., then the real Money Supply will increase. True, False, Uncertain? Explain. Show graphs in i-Y space and i-M/P spaces.
Consider the AD-AS model in the following picture. If the original level of aggregate demand is Ef, what will be the effect of an expansionary monetary policy that shifts aggregate demand from ADf to ADI? Price Pf Pr Fig11a Er C. Yr Real GDP LRAS ADr Ef I don't know. SRAS Ei ADf Yf Yi a. stagflation b. inflation and unemployment ADi d. inflation, but little employment
COURSE: MACROECONOMICS - IS-LM MODEL Analyze and plot IN DETAIL the effect on the money market caused by an increase in the sensitivity of money demand to the level of income (i.e. "k*Y" in the equation of the money Market L = k*Y - h*i). Then, explain and plot how the equilibrium changes in the IS-LM model.
In the IS-LM model, the consequence of an increase in interest rates is: (A) Investment and Aggregate Demand rise, shifting the IS curve to the right. B Money demand decreases, shifting the LM curve down. Money demand decreases, and, as money supply is given, the LM curve shifts up. Investment and Income decrease, moving along the IS curve.
Which of the following is not true for the IS/LM model? O Keynesian demand-side model Fixed price, short-run model OInterdependency between the goods and money markets D Interest rates are a function of investment
Consider the following economy: cd = 230 + 0.60(Y - T)- 460 d = 240 - 480/r L = 0.4Y- 540/ Y = 1,000 Desired consumption: Desired investment: Real money demand: Full-employment output: Expected inflation: * = 0. This is a classical model with no misperceptions about the price level. a. Suppose thatT=G= 200 and that M = 7,850. The equation describing the IS curve is: IS: Y= 1375 - 2350r. The equation describing the LM curve is: LM: Y= 19625 P + 1350r. Using the IS and LM equations, the equation for the aggregate demand curve that shows the relationship between Yand Pis: AD: Y= 502 + 12465 In general equilibrium, output = 1,000, the price level = 25.01, the real interest rate = 15.96%, consumption = 636.6, and investment = 163.4. b. Suppose that the money supply rises to 9,350. What is the new equation for the AD curve? AD: Y-L+미리. (Enter each response rounded fo the noares! whole nurmber.)
. Suppose that there is an increase in the price of housing, which the central bank judges is atemporary asset price bubble. In the New Keynesian model, determine the central bank’s optimalresponse to this asset price increase, using diagrams. Discuss your results.
Using the macro model we learned in this class (MP-IS and AD-AS framework) consider the current crisis. Consider the monetary policy responses to the covid pandemic crisis. Develop separate analysis for an economy which have positive policy rates vs an economy which is at the zero lower bound. Would it require different monetary policies? If so how? What would you expect to happen to the inflation rate, unemployment rate, and economic growth in the near future? Use graphs for each case.
Suppose the government cuts income taxes. Show in the IS-LM model the impact of the tax cut un- der two assumptions: (1) The government keeps interest rates constant through an accommodating monetary policy. (2) The money stock remains unchanged. Explain the difference in results
Refer to the diagram to the right. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD- AS model, this would be depicted as a movement from OA. C to B. OB. C to D. OC. B to C. OD. A to B. OE. A to E. Price leve A LRAS B D E C Real GDP AD ₁ SRAS AD 3 AD 2