Use an open-economy ISLM framework to graph and explain the overall effect of expansionary fiscal policy on y and r in an economy characterized by a relatively interest-sensitive money demand function. Also consider the impact of this policy on the distribution of output among spending sectors.
Q: 1. Scarcity is a condition that exists whe A. there is a fixed supply of relative to the demand for…
A: Economics provide information about the production and consumption decision of the citizens based on…
Q: What is the quantitative theory of money? What are its components? If the Fed wants to have zero…
A: The quantitative hypothesis of money is a hypothesis in economics that recommends that there is an…
Q: 12) A department store wants to sell eight purses that cost the store $40 each and 32 purses that…
A: From the provided information, the following is interpreted: No. of purses Selling price (in $)…
Q: 7. Suppose that the inverse market demand for pumpkins is given by P= $10-0.050. Pumpkins can be…
A: In economics, a competitive equilibrium refers to a state of balance in a market where the quantity…
Q: (c) Determine the equilibrium price of good a (setting the price of good y as 1) that prevails at…
A: To determine the equilibrium price of good x under autarky, we need to find the price that equalizes…
Q: Draw a product supply and demand graph showing a ceiling and a floor as usually created by a…
A: An individual’s willingness to pay for each unit of the quantity he or she wishes to consume is…
Q: Every year, management and labor renegotiate a new employment contract by sending their proposals to…
A: Nash equilibrium is the point of a game corresponding to which each participant optimizes his…
Q: Please match each of the labels with the correct description. These can be purchased in order to…
A: A financial security is a type of investment instrument that represents a financial value or claim…
Q: In Pioneer Ville, the price elasticity of demand for bus rides is 0.5, the income elasticity of…
A: Price elasticity determines the % change in the supplied quantity with respect to a unitary change…
Q: ) At the end of one year, how much will Alex and Spenser have? b) If Alex and Spenser leave their…
A: Compound interest : Compound interest is a situation we start earning on the interest rate also . We…
Q: How much higher education would we expect to be produced in the free market?
A: Free market quantity of higher education is determined at the intersection of supply and private…
Q: The graph below depicts an economy where a decline in aggregate demand has caused a recession.…
A: The impact of change in aggregate demand due to the change in government spending is more than that…
Q: At a price of $4.69 per pound, the supply for cherries is 16,210 pounds, and the demand is 10,280…
A: Demand is a desire backed by purchasing power. when a consumer has the power and willingness to buy…
Q: a) If inflation from year to year is always positive, then total inflation over multiple years will…
A: “Since you have posted multiple questions with multiple sub parts, we will provide the solution only…
Q: You are in the market to buy a used car. Your monthly budget allows for a $300 per month car payment…
A: Monthly Budget: $300 Loan duration: 4 years = 48 months APR: 3%
Q: To halt the continued rise in the price of gasoline, the government implements a price ceiling,…
A: Consumer Surplus: It is defined as the difference between the amount that the consumer is willing to…
Q: The shelter principle may apply to anyone who can trace his or her title back to an HDC. True or…
A: The shelter principle is a legal doctrine that gives insurance to a bonafide purchaser for esteem…
Q: a. How much would customers be willing to pay to obtain a 20-pack of Elario's cupcakes? Price for…
A: Inverse demand function: Inverse dmeand function describes the relationship between the price and…
Q: Analyze the effect of fiscal and monetary policy on interest rate in zimbabwe
A: Fiscal policy is a strategy by which the national government utilizes measures that include…
Q: what are the benefits and costs of policy intervention?
A: Policy interventions can have both benefits and costs, which depend on various factors such as the…
Q: Assume inflation is 2% across both 2021 and 2022, the neutral real interest rate is 4% in 2021 and…
A: Okun's Rule of Thumb studies the inverse relationship between changes in the unemployment rate and…
Q: A US based exporter sells US made goods in UK. The revenue last year was £1,000. The cost of goods…
A: Exchange rate is the rate at which the currency of one country is traded for the currency of other…
Q: enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price…
A: A customised agreement between two parties to purchase or sell an item at a predetermined price at a…
Q: Agree or disagree, then explain your answer: In real life, the best strategy is to pay the highest…
A: Insurance premiums refer to the amount of money an individual or entity pays to an insurance company…
Q: The network demand curve has an upward-sloping segment representing. representing price sensitive.…
A: Demand curve refers to the graphical representation of the quantity that is demanding by a consumers…
Q: Which of the following sequences best represents the crowding-out effect? O a. government purchases…
A: The phenomenon in economics where increased government spending or intervention in an economy leads…
Q: Does the statistic of racial income gap or racial vealth gap perpetuate racecraft?
A: Utilitarianism is a moral concept that posits that the best course of action is the only that…
Q: 5. John Capellini owns a small vineyard and sells wine. The market for his type of wine is fully…
A: A perfectly competitive firm produces output where Price is equal to Marginal Cost (MC). Marginal…
Q: Presently, Able High Lift and Baker Overhead are the only suppliers of services that can lift heavy…
A: Cournot Duopoly Equilibrium and Stackelberg Duopoly Equilibrium are two models used in economics to…
Q: A B 19. Consider Game 1. This game has A B C D E 3 0 = $400 : l 1 2 3 с 10.10 10.0 1.100 300 Game 1.…
A: Dominant strategy is the strategy that yields higher satisfaction and the strategy does not change…
Q: Suppose that in the absence of transportation costs Home specializes in coffee and coal while…
A: Relative price refers to the price of any goods or services in terms of another. The term relative…
Q: The main disadvantage of using money as a store of value is that a. money is not portable b. it…
A: Money transformed from barter to money made from commodities (using items like shells or salt),…
Q: 21. Suppose the firm above is able to price discriminate, charges a price of $80 for the first 120…
A:
Q: The merry-go-round in Ross Park, a public park, was first installed in 1920 and has been…
A: A public good is a kind of good or service that is non-excludable and non-rivalrous in nature,…
Q: A command economy is also called a centrally planned economy. True False
A: An economy alludes to the arrangement of production, dissemination and consumption of goods and…
Q: What is autarky?
A: An economic system implies the method a society organizes the production, distribution, and…
Q: Alcem Pte. Ltd. Is in the business of manufacturing cement. The company sets up a 1 million ton…
A: Marginal cost and marginal revenue are compared to on making a decision on the profit-maximizing…
Q: Which of the following will NOT shift the aggregate demand curve to the right? OA, an increase in…
A: Aggregate demand curve depicts the inverse relationship between price level and aggregate output…
Q: Other things equal, the short-run aggregate supply curve shifts positions when the price level…
A: Production is critical to economics since it is the act of providing commodities and services that…
Q: Suppose there is some hypothetical economy in which households spend $0.75 of each additional dollar…
A: Aggregate demand has four components. Consumption spending Investment Government purchases Net…
Q: 2. Explain the Structure of the Individual Income Tax in the United States. Give Example.
A: The individual income tax in the united states of america is a modern tax system, that means that…
Q: Find the value of the average product at points A, B, C, and D in the graph at the right. (Your…
A: Production function shows how much output is produced using the number of workers.
Q: Dr. Krieger is the only bionic arm specialist on the remote pacific island of Pangu. Because he is…
A: A profit-maximizing monopolist is a company or individual that has exclusive control over the supply…
Q: Explain why Von Hayek believes the Dependence Effect is not a bad thing.
A: The Dependence Effect is an idea presented by economist John Kenneth Galbraith, which proposes that…
Q: Analyze the effect of fiscal and monetary policy in Zimbabwe’s money supply
A: Economic Growth: Economic growth refers to the rise in the overall well-being of the economy in…
Q: Suppose consumers have pre ences over consumption of wine an summarized by the utility function u =…
A: Optimal consumption bundle: The optimal consumption bundle is such that at that bundle the…
Q: The cost of capital for a new project is $55,000. The project is expected to yield $20,000 in year…
A: Present value is the value of investment in today's dollar. Future value is the value of investment…
Q: Hours Needed to Make 1 mixer 8 20 Assume that Maya and Miguel can switch between producing mixers…
A: Absolute advantage refers to the ability of the individual to produce more of the good than the…
Q: Given the following data, answer four questions about the money supply and the money multiplier.…
A: Since the government is the one that produces currency, whether it be in the form of paper money or…
Q: Banks and other financial institutions offer small business loans based on all of these EXCEPT the…
A: A loan is a financial plan where a bank gives funds to a borrower, with the comprehension that the…
Step by step
Solved in 3 steps with 1 images
- Explain and illustrate the following: a) Construct one IS-LM model and illustrate using arrows the effects of the following on Y and I when: Government increases government spending, other factors constant. Show the crowding out effect.b) Construct one IS-LM model and illustrate using arrows the effects of the following on Y and I when: Central Bank conducts an open market purchase of government bonds. Describe the transmission mechanism of monetary policy.c. Use the loanable funds market to illustrate graphically how an increase in net capital outflow will affect domestic interest rates and investment. Briefly explain your illustration.Assume that an economy is experiencing simultaneous equilibrium in both the product market and money market. Furthermore, assume the MPC is currently around a normal level of 0.65 and the sensitivity of real money demand to also around a normal level. What is meant by the term crowding out? In your answer also explain the implications of crowding out for the macroeconomy.An economy is initially described by the following equations: C - 60 + 0.8(Y-T) I- 120-Sr MIP - Y-25, G= 200 т- 200 M - 3000 P- 3 b. Suppose that a newly elected president cuts taxes by 25 percent. Assuming the money supply is held constant, what are the new cquilibrium interest rate and level of income? What is the tax multiplier? new equilibrium r: new cquilibrium Y: tax multiplier:
- Suppose in our two-period model of the economy that the government, instead of borrowing in the current period, runs a government loan program. That is, loans are made to consumers at the market real interest rate r, with the aggregate quantity of loans made in the current period denoted by L. Government loans are financed by lump-sum taxes on consumers in the current period, and we assume that government spending is zero in the current and future periods. In the future period, when the government loans are repaid by consumers, the government rebates this amount as lump-sum transfers (negative taxes) to consumers. We use the same notation as in the lecture notes (y, y′ , c, c′ ,t, t′ , s, T, T′ ). Also, we use l ≡ L/n to represent the size of the loan that each individual consumer takes from the loan program, where n is the population. 1) Write down the government’s current-period budget constraint and its future-period budget constraint. 2) Determine the present-value budget…Consider the following closed economy in the context of the IS-LM model. The consumption function (C), the investment function (I), government purchases (G), taxes (T), the money demand function (MD), money supply (M) and the price level (P) are given as: C = 500 + 0.75(Y - T)I = 1000 - 300?G = 1000T = 1200MD = 0.5Y - 200rM = 5000P = 2 (a) Write down the equations for the IS curve and LM curve. Show your workings. (b) Solve for the short-run equilibrium output and interest rate. (c) Suppose government purchases falls, with ΔG=-175. (i) Using the Keynesian cross model, calculate the change in equilibrium output. (Hint: Use the government purchases multiplier.) (ii) Would your answer be the same if you calculate the change in equilibrium output using the IS-LM model? Briefly explain your answer. (e) Suppose the price level falls. Using an appropriate IS-LM diagram, illustrate the short-run impact of the fall in price level on the equilibrium interest rate and output. No written…The Covid-19 pandemic has forced many countries to partially shutdown their economies to prevent the spread of the virus. In response, many governments have embarked on expansionary fiscal policy. Government Fiscal and Monetary Policy can coordinate to achieve specific economic goals. Use a carefully labeled diagram consisting of an IS curve and the LM curve to illustrate the effect of an expansionary fiscal policy. Assume the Government wants to hold output constant. Please explain your answer.
- Which of the following sequence of events occurs in response to an expansionary fiscalpolicy?a) Aggregate output decreases, causing money demand to decrease, causing the interestrate to decrease and planned investment to increase.b) Aggregate output decreases, causing money demand to increase, causing interest ratesto increase and planned investment to decrease.c) Aggregate output increases, causing money demand to increase, causing interest ratesto increase and planned investment to decrease.d) Aggregate output decreases, causing the demand for money to increase, causinginterest rates to increase and planned investment to increase.Use the IS-LM model to answer this question. Suppose that the government wants to lower the budget deficit but keep output constant. Discuss what mix of monetary and fiscal policy will achieve this goal. Provide your line of reasoning and justify the answer. Attach an appropriate graph to support your answer.The Covid-19 pandemic has forced many countries to partially shutdown their economies to prevent the spread of the virus. In response, many governments including Jamaica have embarked on expansionary fiscal policy. Government Fiscal and Monetary Policy can coordinate to achieve specific economic goals. (a) Use a carefully labeled diagram consisting of an IS curve and the LM curve to illustrate the effect of an expansionary fiscal policy. Assume the Bank of Jamaica want to hold the money supply constant. Please explain your answer. (b) Use a carefully labeled diagram consisting of an IS curve and the LM curve to illustrate the effect of an expansionary fiscal policy. Assume instead, the Bank of Jamaica want to hold interest rate constant. Please explain your answer. (c) Use a carefully labeled diagram consisting of an IS curve and the LM curve to illustrate the effect of an expansionary fiscal policy. Assume the Government wants to hold output constant. Please explain your answer.
- “Expansionary fiscal policy is more effective in influencing the aggregate income level when investment is interest-elastic”. Do you agree with this statement? Why and why not? Explain your answer based on the IS-LM framework.The Covid-19 pandemic has forced many countries to partially shutdown their economies to prevent the spread of the virus. In response, many governments including Jamaica have embarked on expansionary fiscal policy. Government Fiscal and Monetary Policy can coordinate to achieve specific economic goals. (a) Use a carefully labeled diagram consisting of an IS curve and the LM curve to illustrate the effect of an expansionary fiscal policy. Assume the Bank of Jamaica want to hold the money supply constant. Please explain your answer. (b) Use a carefully labeled diagram consisting of an IS curve and the LM curve to illustrate the effect of an expansionary fiscal policy. Assume instead, the Bank of Jamaica want to hold interest rate constant. Please explain your answer. (c) Use a carefully labeled diagram consisting of an IS curve and the LM curve to illustrate the effect of an expansionary fiscal policy. Assume the Government wants to hold output constant. Please explain your answer.Economics 1) Distinguish between discretionary and nondiscretionary fiscal policy. 2) Differentiate between expansionary and contractionary fiscal policy. 3) Plot the following markets on a graph: AD/AS graph: using 19.1 trillion for RGDP and 1.9% for inflation as point A (equilibrium). How will our AD/AS graph look like when U.S. government buys more military vessels (Shift the appropriate AD/AS curve on the graph)? 4) Plot the following markets on a graph: AD/AS graph: using 19.1 trillion for RGDP and 1.9% for inflation as point A (equilibrium). How will our AD/AS graph look like when Congress implements an income tax cut (Shift the appropriate AD/AS curve on the graph)?