Question

In: Economics

Question 1 (a) Use the IS-LM model to illustrate and explain the effects of a decrease...

Question 1

(a) Use the IS-LM model to illustrate and explain the effects of a decrease in consumer spending on equilibrium GDP and interest rates.

(b) Use the IS-LM model to illustrate and explain how a government could use fiscal policy to offset the effects of the decrease in consumer spending from question 1) above.

(c) Use the IS-LM model to illustrate and explain the change of equilibrium GDP and interest rates resulting from a decrease in the money supply. ALSO, under the standard assumptions, explain the dynamic responses of GDP and interest rates as they move from the original equilibrium to their new equilibrium values.

Solutions

Expert Solution

Rahul Sunny answered 2 months ago
Next > < Previous

Related Solutions

1) a) Use the IS/LM model and the FOREX market to illustrate how a decrease in...
1) a) Use the IS/LM model and the FOREX market to illustrate how a decrease in the U.S. money supply affects its own output and its exchange rate with the EU in the short run. b) discuss how expected exchange rates change to illustrate the long run effects of a permanent money supply reduction on the exchange rates.
For each of the following situations, use IS-LM-FX model to illustrate the effects of the shock....
For each of the following situations, use IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no change or ambiguous): Y, I, E, C, I, TB. Assume that the government allows the exchange rate to float and makes no policy response. Foreign income decreases? Investors expect a depreciation of the home currency? The Money supply increases.? Government spending increases.?
For each of the following situations, use IS-LM-FX model to illustrate the effects of the shock....
For each of the following situations, use IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no change or ambiguous): Y, I, E, C, I, TB. Assume that the government allows the exchange rate to float and makes no policy response. a. Foreign income decreases (5p) b. Investors expect a depreciation of the home currency. (5p) c. The Money supply increases. (5p) d. Government spending...
Use the classical IS-LM model to show the effects of a temporary decrease in government purchases...
Use the classical IS-LM model to show the effects of a temporary decrease in government purchases on the equilibrium levels of output, the real interest rate, employment, the real wage, and the price level.
(a) Using the IS-LM-BP model, explain the effects of a decrease in foreign price on domestic...
(a) Using the IS-LM-BP model, explain the effects of a decrease in foreign price on domestic economy under a flexible exchanger rate (b) Assumed that the BP curve is steeper than the LM curve. Using the IS-LM-MP model, analyze the effectiveness of the expansionary in fiscal and monetary policy under flexible exchange rates.
Use the IS-LM model of a closed economy to explain and graphboth the short run effects...
Use the IS-LM model of a closed economy to explain and graphboth the short run effects and the long-run effects of an increase in the money supply on national income, interest rate, investment, and the price level.
On an IS‐LM diagram, show the effects of a decrease in money demand. a. If the...
On an IS‐LM diagram, show the effects of a decrease in money demand. a. If the government did not intervene, what would happen to output and the interest rate in the short run? What would happen in the long run? b. If the government did intervene, using monetary policy to stabilize output, would the Fed use expansionary or contractionary monetary policy? How would you show that on the graph?
Use the IS-LM model to predict the SR effects of each of the following shocks on...
Use the IS-LM model to predict the SR effects of each of the following shocks on income, the interest rate, unemployment, consumption, and investment. For each case, state how the economy moves from one point in the business cycle to another. A) After the invention of a new high speed computer chip, many firms decide to upgrade their computer systems. Explain what the central bank should do to keep income at its full employment level. B) A best- seller titled...
17. Use the IS/LM model to predict the effects of each of the following shocks on...
17. Use the IS/LM model to predict the effects of each of the following shocks on income, the interest rate, consumption, and investment. Explain and illustrate your answers. Assume price level is constant and the economy is closed. a. The Fed reducing the money supply b. The government raising government expenditures and taxes by the same amount.
1)In the IS–LM model, the impact of a decrease in government purchases in the goods market...
1)In the IS–LM model, the impact of a decrease in government purchases in the goods market has ramifications in the money market, because the decrease in income causes a(n) ______ in money ______. A) Increase; supply; B) Increase; demand; C) Decrease; supply; D) Decrease; demand. 2)If the IS curve is given by r = 18 – .01Y and the LM curve is given by r = -4 + .01Y, if the full employment level of output is 1,200, then in...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT