Question

- Use the IS-LM model to determine the effects of each of the following on the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and the price level.

a. There’s increased volatility in the prices of both stocks and bonds

b. Fiscal policy decisionmakers send out stimulus checks to most (or all) American households

Answer #1

Use
the IS-LM model to determine the effects of each of the following
on the general equilibrium values of the real wage, employment,
output, the real interest rate, consumption, investment, and the
price level.
Draw
the diagrams for each.
(a)?Tougher immigration laws reduce the working-age
population.
(b)?There's increased volatility in the prices of stocks and
bonds.
(c)?The government tries to achieve tax equity by an increase in
the corporate tax rate.

Use the IS-LM-FE model to determine the effects of each of the
following on the general equilibrium values of the real wage,
employment, output, the real interest rate, consumption,
investment, and the price level.
d. The introduction of automated teller machines reduces the
demand for money.
(answer says that eventually, price level increases due to an
increase in the usage of ATMs thus, shifting LM curve to the left
and up )
My question is this, what is the relationship...

Use the IS-LM-FE model to determine the effects of each of the
following on the general equilibrium values of the real wage,
employment, output, the real interest rate, consumption,
investment, and the price level.
C. An influx of working age immigrants increases labor supply
(ignore any other possible effects of the increased population
( my question is this, why should price level decrease? it says
that for LM curve to shift down, price level should fall. but I
wonder what...

6. Consider the IS-LM model. The central bank uses the interest
rate as its policy instrument. Illustrate and explain the impact of
the following shocks on the equilibrium values of real
income/output, money stock, consumption, and investment.
A. The non-bank private sector lowers its currency holdings.
B. Households increase autonomous saving
C. Default risk premium declines

For each of the following cases, determine whether an individual
should buy Canadian bonds or foreign bonds.
a. i = 4%, i* = 6%,
expected depreciation of our dollar of 3%
b. i = 4%, i* = 6%,
expected depreciation of our dollar of 1%
c. i = 6%, i* = 5%,
expected depreciation of our dollar of 3%
d. i = 6%, i* = 5%,
expected depreciation of our dollar of 2%
e. i = 5%, i* = 5%,...

For each of the following situations, use the IS-LM-FX model to
illustrate the effects of the shock. Please explain how you
obtained your answer (do not just state the effect). For each case,
state the effect of the shock on the following variables (increase,
decrease, no change, or ambiguous): Y, i, E, C, I and TB. Assume
the government allows the exchange rate to float and makes no
policy response.
1. The money supply increases.
2. Government spending increases.
3....

For each of the following situations, use the IS-LM-FX model to
illustrate the effects of the shock. Please explain how you
obtained your answer (do not just state the effect). For each case,
state the effect of the shock on the following variables (increase,
decrease, no change, or ambiguous): Y, i, E, C, I and TB. Assume
the government allows the exchange rate to float and makes no
policy response.
1. The money supply increases.
2. Government spending increases.
3....

A real Keynesian model of a mixed economy with a marginal
propensity to consume equal to .9 produces an equilibrium level of
$2400 billion that is $600 billion below a full employment level of
output.
A) What change in government spending would bring about full
employment? Be sure to calculate the government spending
multiplier.
B) The resulting increase in real output have driven up real
interests rates from 3% to 4% and those higher real interest rates
reduced investment by...

1- In Keynes’s underemployment model with fixed money wages, if
there is an exogenous fall in investment, the economy will settle
at a lower price level leading to
a- a shift in the LM curve to the right and real wage to
rise.
b- a shift in the LM curve to the left and real wage to
fall.
c- a shift in the LM curve to the left and real wage to
rise.
d- a shift in the LM curve...

3. The IS-LM Model
Consider an economy characterized by the following equations for
consumption (C), investment (I), government spending (G), taxes
(T), aggregate demand (Z), output (Y), and the interest rate
(i):
C = 54 + 0.3*(Y – T)
I = 16 + 0.1*Y – 300*i
G = 35
T = 30
Z = C + I + G
i = ?
Suppose the central bank has set the interest rate equal to 2%
(this is, ? = 0.02).
a)...

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