Question

In: Economics

Consider the following: C= 116 + 0.8 (Y - T) - 1000r I= 140 - 2000r...

Consider the following: C= 116 + 0.8 (Y - T) - 1000r

I= 140 - 2000r G= 165 T= 30 + 0.25Y

EX= 100; IM= 110 + 0.2Y

L= 5Y - 100000r M= 60000 P= 100 rrr= 0.2

IS: Y = 1/0.6 (387 - 3000r) Y = 645 - 5000r

LM: Y = 1/5 (600 + 100000r) Y = 120 + 20000r

a) If G increases by 30, is it an expansionary, or a contractionary (pick one) fiscal policy? By how much does the IS and LM curves shift and by how much does Y change?

How much is the crowding out effect? Is the budget balanced? If Fed monetizes the additional budget deficit to eliminate crowding out, do they need to buy bonds, or sell bonds?

b) If the Fed purchases securities worth of 2500; is it an expansionary, or a contractionary (pick one) monetary policy? If there is no leakage of excess reserves, then by how much does it change the money supply? By how much do the IS and LM curves shift and by how much does Y change?

Solutions

Expert Solution

Rahul Sunny answered 3 hours ago
Next > < Previous

Related Solutions

Consider the following macroeconomic model: C(t) + I(t) = Y (t) I(t) = 0.8 dC(t) dt...
Consider the following macroeconomic model: C(t) + I(t) = Y (t) I(t) = 0.8 dC(t) dt C(t) = 0.4Y (t) + 1 where C(t), I(t), Y (t) denote respectively the consumption, investment and national income at time t. Write the differential equation in terms of C(t), find the solution for the differential equation, and draw the phase diagram and comment on the stability.
18. Consider the following closed economy: C = 60 +0.8(Y-T) I = 150-1000i G = 250...
18. Consider the following closed economy: C = 60 +0.8(Y-T) I = 150-1000i G = 250 T = 200 Ms/P = 100 Md/P = 40+0.1Y-1000i a. Derive the IS and LM functions. b. Find the equilibrium interest rate and the equilibrium level of income. c. Suppose we change this model such that investment is assumed to be completely interest inelastic: that is, investment does not depend on the rate of interest or we have I=150. Write the new equations for...
c = 100 + 0.8 (y - t) i = 500 - 50r g = 400...
c = 100 + 0.8 (y - t) i = 500 - 50r g = 400 t = 400 Md = P(0.2y + 500 – 25r) Price level is fixed at 1. The money supply is 520 The government increases taxes by one unit. Calculate the shift of the IS curve. What is the change in the level of aggregate demand? What is the change in the interest rate and investment? What is the change in disposable income and consumer...
Consider a hypothetical economy where: • C(Yd) = 105 + 0.8 × (Y − T) •...
Consider a hypothetical economy where: • C(Yd) = 105 + 0.8 × (Y − T) • I(r) = 74 − 1 × r • G = 65 • T = 50 1. Using the information above, write out the planned Aggregate Expenditure equation. 2. Write down an expression for the Investment-Savings (IS) Curve. 3. Assume that inflation is zero, so that i = r. This economy’s central bank follows a given Monetary Policy Rule: r = i = 0.003 ×...
Consider a hypothetical economy where: • C(Yd) = 105 + 0.8 × (Y − T) •...
Consider a hypothetical economy where: • C(Yd) = 105 + 0.8 × (Y − T) • I(r) = 74 − 1 × r • G = 65 • T = 50 1. Using the information above, write out the planned Aggregate Expenditure equation. 2. Write down an expression for the Investment-Savings (IS) Curve. 3. Assume that inflation is zero, so that i = r. This economy’s central bank follows a given Monetary Policy Rule: r = i = 0.003 ×...
An economy is described by the following equations: C = 40 + 0.8 (Y – T)...
An economy is described by the following equations: C = 40 + 0.8 (Y – T) I = 70 G = 120 NX = 10 T = 150 a. When Y = 600, aggregate expenditure is . b. Consumers and businesses alike become more pessimistic about the future and reduce their respective expenditures by 10 each. Immediately following this change, what is aggregate expenditure if Y is still 600? (In other words, what is the initial change in aggregate expenditure?)...
An economy is described by the following equations: C = 100 + 0.8 (Y – T)...
An economy is described by the following equations: C = 100 + 0.8 (Y – T) I p = 80 G = 140 NX = 20 T = 170 Y* = 980 The multiplier in this economy is 5. a. Find a numerical equation relating planned aggregate expenditure to output. Instruction: Enter your response for mpc rounded to one decimal place. PAE = + Y. b. Construct a table to find the value of short-run equilibrium output. Instruction: If you...
. Consider the following model: C = 500 + .3(Y − T) I = 150 +...
. Consider the following model: C = 500 + .3(Y − T) I = 150 + .1Y − 1000i G = 350 T = 250 (M/P) d = 2Y − 8000i M/P = 1600 (a) Derive the IS relation (b) Derive the LM relation (c) Solve for equilibrium real output. (d) Solve for the equilibrium interest rate. i = .131 (e) Solve for the equilibrium values of C and I and verify the value you obtained for Y by adding...
Given the following economy: Y = C(Y - T) + I(r) + G C(Y - T)...
Given the following economy: Y = C(Y - T) + I(r) + G C(Y - T) = a + b(Y - T) I(r) = c - dr M/P = L(r,Y) L(r,Y) = eY - fr i. Solve for Y as a function of r, the exogenous variables G and T, and the model's parameters a, b, c, and d. ii. Solve for r as a function of Y, M, P, and the parameters e and f. iii. Derive the aggregate...
Let the following equations characterize an economy: C = 400 + 0.8*(Y-T) G = 300 T...
Let the following equations characterize an economy: C = 400 + 0.8*(Y-T) G = 300 T = 250 I = 200 a. Draw a graph of planned expenditures for this economy and calculate the equilibrium level of output.                                                 b. Suppose output this year was 3000. Is the economy in equilibrum? c. If the government wanted to use fiscal policy to move the economy to equilibrium, by how much would it have to increase government spending? What is the government...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT