Question

In: Economics

Aggregate Demand II: Applying the IS - LM Model- End of Chapter Problem   Use the...

Aggregate Demand II: Applying the IS - LM Model- End of Chapter Problem Use the IS-LM model to predict the short-run effects

a. After the invention of a new high speed computer chip, many firms decide to upgrade their computer systems Firms Upgrade C

b. A wave of credit card fraud increases the frequency with which people make transactions in cash. Cash Transactions Increas

c. A best seller titled Retire Rich convinces the public to increase the percentage of its income devoted to saving. People A

Aggregate Demand II: Applying the IS - LM Model- End of Chapter Problem
 
Use the IS-LM model to predict the short-run effects of each of the following shocks on income, the interest rate, consumption, and investment. In each case, explain what the Fed should do to keep income at its initial level.
 
For each of these four shocks, (1) shift the appropriate curve in the IS-IM graph to reflect how the economy will respond to the shock; (2) indicate the impact of the shock on consumption, income, interest rate, and investment by placing each in the appropriate category of "increase" or "decrease", and (3) identify the Fed's proper policy response to maintain income at its initial level.
 
a. After the invention of a new high speed computer chip, many firms decide to upgrade their computer systems Firms 
b. A wave of credit card fraud increases the frequency with which people make transactions in cash. 
c. A best seller titled Retire Rich convinces the public to increase the percentage of its income devoted to saving. 

Solutions

Expert Solution


Related Solutions

Consider the IS-LM and aggregate demand/aggregate supply model of Chapters 11 and 12. Consider a reduction...
Consider the IS-LM and aggregate demand/aggregate supply model of Chapters 11 and 12. Consider a reduction in the level of taxes, starting from an initial situation in which output is equal to its natural level. a) Depict the short-run effects of the reduction in T using 3 graphs: one for the market for goods and services, one for the IS-LM curves, and one for the Aggregate Demand and Supply curves. How do the new short-run equilibrium values of r, Y...
Explain in detail why the aggregate demand curve slopes downward in the standard IS-LM model. Then...
Explain in detail why the aggregate demand curve slopes downward in the standard IS-LM model. Then explain why the Long-run Aggregate Supply Curve is vertical.
A manager is applying the Transportation Model of linear programming to solve an aggregate planning problem....
A manager is applying the Transportation Model of linear programming to solve an aggregate planning problem. Demand in period 1 is 100 units, and in period 2, demand is 150 units. The manager has 125 hours of regular employment available for $10/hour each period. In addition, 50 hours of overtime are available for $15/hour each period. Holding costs are $2 per unit each period. a. How many hours of regular employment should be used in period 1? (Assume demand must...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 2. The aggregate demand curve is given by Y = MV(1/P), with M = 6,000 and V=1. a) Suppose that there is an adverse supply shock that shifts the short-run supply curve upwards, to P = 3. What are the values of P and Y in the...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 2. The aggregate demand curve is given by Y = MV(1/P), with M = 6,000 and V=1. a) Suppose that there is an adverse supply shock that shifts the short-run supply curve upwards, to P = 3. What are the values of P and Y in the...
1. Based on the IS-LM model, derive the aggregate demand curve in the three sector economy.  What...
1. Based on the IS-LM model, derive the aggregate demand curve in the three sector economy.  What are the factors that cause the aggregate demand curve to be negatively sloped? 2. Using the IS-LM curve framework, analyze the effects of each of the following shifts on the level of income and the interest rate. (a)  A fall in the autonomous component of investment (b)  An open market purchase of securities by the Federal Reserve System 3. (a) Will monetary policy be more or...
10. Use the model of aggregate demand and aggregate supply to show the differences between demand-pull...
10. Use the model of aggregate demand and aggregate supply to show the differences between demand-pull inflation and cost-push inflation.
Use the Aggregate Demand and Aggregate supply model to explain the current crisis on the coronavirus....
Use the Aggregate Demand and Aggregate supply model to explain the current crisis on the coronavirus. Explain the current economic contraction without talking about the government and Federal Reserve responses. Start with talking about how AD and/or AS would be affected by social distancing measures which means that people would stay home, unemployment rises, and non-essential business close.
Use the Aggregate Demand and Aggregate Supply model to analyze the impacts of the following events,...
Use the Aggregate Demand and Aggregate Supply model to analyze the impacts of the following events, show this on a graph for each situation. 1) Steelworkers go on strike and produce less steel. 2) US Senators read about the glories of the Internet and so demand for high tech government purchases increases. 3) A series of Investment Banks such as Lehman Bros and Bear Sterns go bankrupt,
Use the model of aggregate demand and short-run aggregate supply to explain how each of the...
Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run. a. A decrease in government purchases b. A major improvement in technology c. A trade surplus d. A decrease in Labor
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT