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Question: 1 Classical Model: The Long Run 1.1 Open Economy Solve for the following Y, W P , L, C, I, Nx, r,...

1 Classical Model: The Long Run 1.1 Open Economy Solve for the following

Y, W P , L, C, I, Nx, r, i, Md ,

**when 1. Labor supply increases**

**ansewer key**

1. L s ?,? (W/P) ?

2. L ?? Y ?, ? S ?, ? r ?

3. r ?,? C, I ?

4. r ?,? CF ?,? e ?? E

5. r ?,? i ?? Md ?? P ?

6. e, P ?? E ?? Nx ?

Explain in as much detail as possible. (Just like we did in class)

Nx = net expoet

r= real interst

i= nominal interst

Answer #1

3- Classical Model: The Long Run 1.1 Open Economy Solve for the
following
Y, W P , L, C, I, Nx, r, i, Md ,
when 3. Investment increases
answer key
1. Y , ¯ ¯ (W/P), L¯
2. I ?? r ?? C ?
3. r ?? CF ?? e ?
4. r ?? i ?? Md ?? P ?
5. e, P ?? E ?? Nx ?
Explain in as much detail as possible. (Just like we did...

Given a closed economy in the long run (classical model):
Y=F(K,L)
Y=C+I+G C=c(Y-T)
I=I(r)
G and T set by Government policy.
For the following changes in the economy, show the impact of the
change on the loanable fund market. Use a fully labeled graph.
Also state the impact of the change on the following variables:
Y, C, G, S, I and r.
1) A decrease in Government Spending.
2) A decrease in Taxes.
3) An increase in Investment demand.

Consider the following Keynesian (short-run) model along with
the Classical (long-run) model of the economy.
Labor Supply: Le = 11
Capital Supply: K=11
Production Function:
Y-10K.3(Le).7
Depreciation Rate: &=.1
Consumption Function: C=12+.6Yd
Investment Function: I= 25-50r
Government Spending: G=20
Tax Collections: T=20
Money Demand Function: Ld=
2Y-200r
Money Supply: M=360
Price Level: P=2
Find an expression for the IS curve and plot it.
Find an expression for the LM curve and plot it.
Find the short run equilibrium level of...

Consider the following short-run model of an open economy:
Y = C+I+G+NX
C = 100+(2/3)(Y-T)
I = 200
NX = X-(1/E)IM
X = (1/E)400
IM = (1/6)E Y
Domestic and foreign prices are constant with
P=P*=1. Thus, the real exchange rate is equal
to the nominal rate E.
The policy makers want to achieve the following targets for
output, consumption and net exports: YT=1200,
CT=780 and NXT=0. Show how these targets
can be achieved using government consumption (G), taxes
(T)...

Consider the following short-run, open economy model of the
economy.
Goods Market
C = 100 + 0.9(Y − T) I = 50 − 7.5r; NX = −50 G = 200; T =
100
Money Market
M = 4,000 P = 10 L(r, Y) = Y − 350r
a. (4 pts) Derive the IS and LM equations and put them on a
graph with the real interest rate (r) on the vertical axis and real
GDP (Y) on the horizontal axis....

The following equations are those for a small open economy,
which takes the world real rate of interest ( r w
) as given. In particular:
M/P = 24 + 0.8Y - 400r
C =2+0.8(Y-T) - 200r
I =30 - 200r
NX =24-0.1Y - 2e
Y =C +I +G+NX
You are given the following values for various variables:
rw = 0.05; M/P = 100;G
= 10 and the budget is balanced. Using the model, find the values
for Y, e...

Consider the closed-economy model.
(a) Suppose the economy is initially in long-run equilibrium
with Y = Y¯ , r = ¯r, and P = P1. Draw IS-LM and AD-AS diagrams
showing this equilibrium.
(b) Suppose the economy is then hit by an adverse supply shock,
which causes P1 to jump up to P2 > P1. Using Keynesian cross and
money market diagrams, explain what will happen to the IS and LM
curves in the short run as a result of...

) Explain expansionary monetary policy using
the following four macroeconomic models. Indicate what happens to
real GDP (Y), the components of real GDP (C, I, G, NX), and the
price level (P). Why are the answers different depending on the
model used?
Short Run: Closed Economy (IS/LM)
Short Run: Aggregate Demand/Aggregate Supply
Long Run: Closed Economy (S = I)
Long Run: Small, Open Economy (S – I = NX)

The next several questions refer to the case of an economy with
the following equations:
Y = 50K0.3L0.7 with K=100 and L=100
G=1000, T=1000
I = 2000- 1000r
C = 200 + 0.5(Y-T)
real money demand: (M/P)d = 0.2Y - 1000r
nominal money supply: M = 3200
(Assume a closed economy: Y = C + I + G. Assume the economy is
in the long run equilibrium.)
compute the nomianl wage (W)

Assume the following model of the closed economy in
the short run, with the price level (P) fixed at 1.0
C= 0.5 (Y -T)
T = 1,000
I = 1,500- 250r
G = 1,500
Md/P = 0.5Y - 500r
Ms = 1,000
a) Derive the numerical aggregate demand (AD) curve
for this economy, expressing Y as a function of P
b) You are the chief economic advisor in this
hypothetical economy. Do you believe that fiscal policy is more
potent...

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