Question
In: Economics
Imagine 2 economies that are identical in every way, but economy A has a high marginal...
Imagine 2 economies that are identical in every way, but economy A has a high marginal propensity to consume (MPC) and B has a low (MPC).
(i) show graphically and explain using the IS-LM model the effect on output and the interest rate if the money supply increased by the same amount in both economies.
(ii) Show graphically and explain the effect on output and the interest rate if the central bank decides to sell bonds through open market operations.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
a) There are two economies, Flexiland and Fixland. These economies are identical in every way except...
a) There are two economies, Flexiland and Fixland. These
economies are identical in
every way except that in Flexiland, real wages are flexible and
maintain equality between
the quantities of labor demanded and supplied. In Fixland money
wages are sticky but
wages are set so that, on the average, the quantity of labor
demanded equals the quantity
supplied. (4)
i) Explain which economy has the higher average unemployment
rate.
ii) Explain which economy has the largest fluctuations in
unemployment.
Suppose there are two closed economies: Economy A and Economy B. Economy A has a high...
Suppose there are two closed
economies: Economy A and Economy B. Economy A has a high average
rate of time preference relative to economy B’s low average rate of
time preference.
(1) Describe the differences you
would expect to see with respect to interest rates and levels of
investment in the two economies. (2) Describe what would occur if
these countries were open to international capital flows. (This is
the key to answering Bernanke’s question)
Suppose there are two closed economies: Economy A and Economy B. Economy A has a high...
Suppose there are two closed economies: Economy A and Economy B.
Economy A has a high average rate of time preference relative to
economy B’s low average rate of time preference. (1) Describe the
differences you would expect to see with respect to interest rates
and levels of investment in the two economies. (2) Describe what
would occur if these countries were open to international capital
flows. (This is the key to answering Bernanke’s question)
Suppose there are two closed economies: economy a and b. Economy a has a high average...
Suppose there are two closed economies: economy a and b. Economy a
has a high average rate of time preference relative to economy B’s
low average rate of time preference. (1) describe the differences
you would expect to see with respect to interest rates and levels
of investment in the two economies. (2) describe what would occur
if these countries were open to international capital flows.
Exercise 1. Consider two economies in which the population is stable; they are identical in every...
Exercise 1. Consider two economies in which the population is
stable; they are identical in every respect except that households
in economy A save more of their income than households in economy
B. How will these economies differ in terms of the level of output,
labour productivity, and the growth rates of output and
productivity? Explain.
Now consider countries C and D, both identical except that firms
in country C allocate more resources to research and development
(which tends to...
Consider two economies in which the population is stable; they are identical in every respect except...
Consider two economies in which the population is stable; they
are identical in every
respect except that households in economy A save more of their
income than households in
economy B. How will these economies differ in terms of the level of
output, labour
productivity, and the growth rates of output and productivity?
Explain.
Now consider countries C and D, both identical except that firms in
country C allocate more
resources to research and development (which tends to lead to...
You are evaluating two annuities. They are identical in every way, except that one is an...
You are evaluating two annuities. They are identical in every
way, except that one is an ordinary annuity and the other is an
annuity due. Which of the following is FALSE?
A. The ordinary annuity must have a higher future value than the
annuity due.
B. The ordinary annuity must have a lower present value than the
annuity due.
C. The two annuities will differ in present value by the factor
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D. The annuity due and the ordinary...
Assume that there are two companies identical in every way except that Company A uses FIFO...
Assume that there are two companies identical in every
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cost method to value their inventory.
If both companies visited a bank for the purpose of obtaining a
loan due to rising inventory costs and the bank made its decision
based on the highest net income, which company would be better
positioned to obtain the loan?
What if the bank made its decision based on the highest cash...
Levered, Inc. and Unlevered, Inc. are identical in every way except for their capital structures. Each...
Levered, Inc. and Unlevered, Inc. are identical in every way
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$29 million before interest per year in perpetuity, with each
company distributing all of its earnings as dividends. Levered's
perpetual debt has a market value of $91 million and costs 8
percent per year. Levered has 2.3 million shares outstanding,
currently worth $105 per share. Unlevered has no debt and 4.5
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Consider two economies. In economy A: autonomous consumption equals 700, the marginal propensity to consume equals...
Consider two economies. In economy A: autonomous consumption
equals 700, the marginal propensity to consume equals 0.80, taxes
are fixed at 50, investment is 100, government spending is 100, and
net exports are 40.
In economy B: autonomous consumption equals 1000, the marginal
propensity to consume equals 0.8, taxes are proportional to income
such that consumers pay 25% of their income as taxes, investment is
250, government purchases are 150, and net exports are 400.
(i) What is the planned...
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