Question

In: Economics

IS-LM closed economy – SR The Economy of North Haverbrook is described by the following agents...

IS-LM closed economy – SR

The Economy of North Haverbrook is described by the following agents and characteristics.

consumers C = 50 + 0.85 (Y-T)

(taxes) T = 100

(government expenditures) G = 100

(investments) I = 500 – 50r

(money supply) M = 3,000

(price levels) P = 1

(money demand) L (r,Y) = Y – 10r

(potential output) Y* = 3200

The goods and services markets in equilibrium is described as: Y = AE, where AE = C + I + G, and money market is in equilibrium when M/P = L(r,Y).

[2 points each, except for h) 4 points]

  1. Find the aggregate expenditure function

  1. Find the IS curve

  1. Find the LM curve

  1. Find the equilibrium exchange rate and output (Y, r)

  1. Find the aggregate demand curve

  1. Find Private savings, Public Savings and National savings

  1. Do we have an expansionary gap or recessionary gap? What size?

  1. If fiscal policy is used (government expenditure: G), how much +/- change will be required to close the gap?

  1. If fiscal policy is not used, how will the gap close? (impact on prices and output – you can graph a diagram if it helps)

Solutions

Expert Solution


Rahul Sunny answered 7 months ago
Next > < Previous

Related Solutions

Consider an economy described by the IS-LM-PC model, and suppose that agents in it have unanchored...
Consider an economy described by the IS-LM-PC model, and suppose that agents in it have unanchored inflation expectations. Finally, assume that the economy begins at the medium run equilibrium with a positive medium run rate of inflation. Invariably, a drop in consumer confidence in this economy will produce the following immediate outcome. Select one: a. Inflation acceleration; b. A decrease in potential output; c. Deflation; d. Disinflation;
IS-LM Model (Closed Economy) The following equations describe a small open economy. [Figures are in millions...
IS-LM Model (Closed Economy) The following equations describe a small open economy. [Figures are in millions of dollars; interest rate (i) is in percent]. Assume that the price level is fixed. Goods Market                                             C = 250 + 0.8YD YD = Y + TR – T T = 100 + 0.25Y I = 300 – 50i G = 350; TR = 150 Money Market L = 0.25Y – 62.5i Ms/P = 250 Goods market equilibrium condition: Y = C +...
Consider the following IS-LM model in a closed economy: C = 335 + 0.3YD I =...
Consider the following IS-LM model in a closed economy: C = 335 + 0.3YD I = 130 + 0.15Y − 850i G = 350 T = 245 i = 0.04 M/P = 3.6Y − 9,250i a. Suppose Government increased the taxes. Show the impact of this policy on IS-LM graph in Short-Run. Be explicit about the assumptions you make (which variables do not change in IS-LM relation in Short Run, which ones increase/decrease). You do not need to show exact...
Compare the Closed-Economy IS-LM model, an Open-Economy IS-LM-BP model in which exchange rates are allowed to...
Compare the Closed-Economy IS-LM model, an Open-Economy IS-LM-BP model in which exchange rates are allowed to float freely, and an Open-Economy IS-LM-BP model in which exchange rates are held constant by the central bank. Specifically, use the three models to explain, and compare, the effects on GDP, interest, and the exchange rate of the national currency of: a. A sudden increase in government expenditures. b. A sharp increase in the discount rate and a massive sale of Treasury bonds by...
please compare and explain the IS-LM curve in a closed economy and a small open economy
please compare and explain the IS-LM curve in a closed economy and a small open economy
Suppose a closed economy (economy that does not engage in international trade) is described by the following table.
Suppose a closed economy (economy that does not engage in international trade) is described by the following table. Year Potential GDP Real GDP Price Level1 $1600 billion $1600 billion 100 2 $1650 billion $1620 billion 109 a. What problem will occur in the economy in Year 2 if no policy is pursued? b. Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact will this policy have on...
Suppose a closed economy (an economy that does not engage in international trade) is described by the following table.
Suppose a closed economy (an economy that does not engage in international trade) is described by the following table.YearPotential GDPReal GDPPrice Level1$1200 billion$1200 billion1002$1250 billion$1270 billion109(a) What problem will occur in the economy in Year 2 if no policy is pursued? (b) Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact will this policy have on the various components of the aggregate expenditures?...
Suppose that the closed economy of an island H is described by the following equations: GDP...
Suppose that the closed economy of an island H is described by the following equations: GDP (Y) = 10000, government expenditures (G) = 600, Taxes (T) = 2000, Consumption (C) = 400 + 3/4 (Y-T), and investment (I) = 200 – 1400 r a. Write and explain the equation of the GDP b. Compute 1. Private saving 2. Public saving 3. National saving 4. Equilibrium interest rate c. What can you conclude about the economy of Island H?
Suppose a closed economy (economy that does not engage in international trade) is described by the...
Suppose a closed economy (economy that does not engage in international trade) is described by the following table. Year Potential GDP Real GDP Price Level 1 $1600 billion $1600 billion 100 2 $1650 billion $1620 billion 109 a. What problem will occur in the economy in Year 2 if no policy is pursued? b. Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact...
Suppose a closed economy (economy that does not engage in international trade) is described by the...
Suppose a closed economy (economy that does not engage in international trade) is described by the following table. Year Potential GDP Real GDP Price Level 1 $1600 billion $1600 billion 100 2 $1650 billion $1620 billion 109 a. What problem will occur in the economy in Year 2 if no policy is pursued? b. Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT