(a) Derive the AD curve from the IS-LM curves.
Label the axes in the two graphs.
(b) What is the difference between the
Keynesian and classical views on price adjustment?
(c) Describe the effects, according to both
views, of an increase in the money supply. Explain what happens to
real output and the price level. Use the AD-AS model diagram to
discuss the effects.
3. Draw fully labeled graphs.
(a) Write out the IS relation and the LM relation (use the real
money demand equals to real money supply).
(b) Suppose now the central bank increases money supply. What
open market operations will central bank exercise in this case?
Draw the financial market diagram to show the effect on interest
rate for a given real output Y.
(c) Using your answer for (b), draw the IS-LM model to show the
effects on interest rate...
Answer each part by using well-labelled graphs for the IS-LM,
WS-PS and AS-AD models:
a) Assume that Australian government has made it very difficult
for refugees (who are prepared to work at lower wages) to obtain
work permits to enter the workforce. Explain how natural rate of
unemployment would change.
b) Assume that the RBA decided to increase its price target,
analyse how the economy would adjust to a medium-run equilibrium.
c) Would your answer to (b) change if the...
Draw fully labeled graphs.
(a)
Use the financial market diagram to derive the LM curve when
there is an interest rate target. Explain.
(b)
What is the slope and intercept of the LM curve when there is an
interest rate target?
(c)
When is fiscal policy more effective at changing the level of
output: when the central bank maintains a fixed real money supply
or when the central bank sets an interest rate target? Draw the
IS-LM model and explain.
Answer the following questions assuming known IS and
LM curves.
Derive the associated aggregate demand (AD) curve.
Why does it have a negative slope?
What is the effect of an increase in government spending on the
AD curve?
What is the effect of an increase in real money balances on the
AD curve?
Answer the following questions assuming known IS and LM
curves.
Derive the associated aggregate demand (AD) curve.
Why does it have a negative slope?
What is the effect of an increase in taxes on the AD
curve?
What is the effect of a decrease in real money balances on the
AD curve?
Using IS and LM graphs, explain
PLEASE USE GRAPHS!!!!
Monetary policy which targets the interest rate
Monetary policy which targets the money supply
When each of the two targeting strategies are the most
effective in managing the business cycle