Question

Consider the following economy: Planned consumption: ? = 900 + 0.5(? − ?) − 180? Planned investment: ? = 950 − 180? Real money demand: ( ? ? ) ? = 0.5? − 180?

a. (2 pts) Suppose ? = 400, ? = 450, and ? = 9,750. Find an equation for the IS curve.

b. (2 pts) Find an equation for the LM curve.

c. (2 pts) Find an equation for the aggregate demand curve. Express the AD curve as ? being a function of ?. (Hint: Use the IS and LM equations to find a relationship between ? and ?.)

d. (5 pts) If the full employment output ? = 4,000, what are the equilibrium values for the level of aggregate prices, output, consumption, investment, and the real interest rate?

e. (2 pts) Suppose that the money supply falls to ? = 5,250. What is the equation for the AD now?

f. (5 pts) Repeat (d) given that money supply falls to 5,250

g. (3 pts) Explain what you find using the IS-LM diagram, and the LRAS curves drawn in the ? − ? space. Argue whether IS, LM shifted or not and why

**PLEASE ONLY ANSWER E- G**

Answer #1

Suppose desired consumption and desired investment are
?? = 300 + 0.75(? − ?) − 300?
T = 100 + 0.2Y
?? = 200 − 200?
G is the level of government purchases and G=600
Money demand is
?? ?
= 0.5? − 500(? + ??)
where the expected rate of inflation, ??, is 0.05. The nominal
supply of money M = 133,200.
Suppose the full employment output is 2500 and the price level in
the short run is 120....

2) Consider the following Keynesian model of the economy.
Consumption Function: C = 12 + .6 Y d,
Investment Function: I = 25 − 50 r,
Government Spending: G = 20,
Tax Collections: T = 20,
Money Demand Function: L d = 2 Y − 200 r,
Money Supply: M = 360,
Price Level: P = 2.
a) Find an expression for the IS curve and plot it.
b) Find an expression for the LM curve and plot it.
c)...

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...

Suppose that economy of Portugal is characterized by the
following C = 200 + 0.5 (Y - T) Represents the consumption function
I = 600 – 30 r represents the investment function G = 300
represents the public spending T = 300 represents the level of
taxation (m/p)d = y - 40 r represents the money demand function
(m/p)s = 1500 r represents the real money supply d Y represents the
global output Find the IS curve the LM curve...

Suppose that in a closed economy with a public sector the
following relations apply: Consumption function: C = 200 + 0.60Yd
where (Υd = Y –T) Desirable investment: Ιp = 400 - 560r Government
expenditure: G = 250 Taxes: Τ = 50 Real money demand for
transactions: 0.5Y Real money demand for speculation: 600 - 2200r
Nominal amount of money: M = 1000 Price level: P = 1.25
A. Find the equilibrium in the commodity market (IS curve).
B. Find...

The
components of planned aggregate spending in a certain economy are
given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r
Planned Investment: I p = 400–3000r Government Revenue and
Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the
real interest rate (For example, r = 0.01 means that the real
interest rate is 1 percent). (1) Find the level of public saving.
(2) Suppose that the real interest...

3. The components of planned aggregate spending in a certain
economy are given by Consumption Function: C = 800 + 0.75(Y - T) –
2000r
Planned Investment: Ip = 400–3000r
Government Revenue and Spending: T = 300 and G = 450 Net Export: NX
= 75
where r is the real interest rate (For example, r = 0.01 means
that the real interest rate is 1 percent). (1) Find the level of
public saving.
(2) Suppose that the real interest...

The production function in an economy
is Y = 2(7N-0.02N2) With this production function, the
marginal product of labor is .mpn = 14 - .08N.
Labor Supply is , N8 =
88+2w,
Desired consumption is ,
Cd=100+0.8Y -5020r -.5G,
Desired investment is
Id=100-500r
Real money demand is Md/P =
Y-2000 (r+?e)
Other variables are expected inflation
?e=.05 , government purchases G = 200,
and money supply is M = 2100
1. Find the general equilibrium values of the real wage,...

Consider the following economy (with flexible exchange rate
system):
• Desired consumption: Cd = 300 + 0.5Y − 2000r
• Desired investment: Id = 200 − 3000r
• Government purchases: G = 100
• Net export: NX = 350 − 0.1Y − 0.5e
• Real exchange rate: e = 20 + 1000r
• Full employment: Y ̄ = 900.
• Nominal money stock: M = 4354
• Real money demand: L = 0.5Y − 200r
(a) Find the equations for...

An economy is initially described by the following
equations:
C = 500 + 0.75(Y - T); I = 1000 - 50r; M/P = Y - 200r;
G = 1000; T = 1000; M = 6000; P = 2;
where Y is income, C is consumption, I is investment, G is
government spending, T is taxes, r is the
real interest rate, M is the money supply, and P is the price
level.
a. Derive the IS equation and the LM...

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