Learn more about our help with Assignments: Macroeconomics
Search & Filtering
Macroeconomics
Consider two alternative programs for contraction. One is the removal of an investment subsidy; the other is a rise in income tax rates. Use the IS-LM model and the investment subsidy shifts the investment schedule, to discuss the impact of these alternative policies on income,
interest rates, and investment
interest rates, and investment
Macroeconomics
1. The following equations describe an economy. (Think of C , I , G , etc., as being measured in
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C 5 0.8(1 2 t ) Y (P1)
t 5 0.25 (P2)
I 5 900 2 50 i (P3)
−−G 5 800 (P4)
L 5 0.25 Y 2 62.5 i (P5)
−−My−
P 5 500 (P6)
3. a. How does an increase in the tax rate affect the IS curve?
b. How does the increase affect the equilibrium level of income?
c. How does the increase affect the equilibrium interest rate?
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C 5 0.8(1 2 t ) Y (P1)
t 5 0.25 (P2)
I 5 900 2 50 i (P3)
−−G 5 800 (P4)
L 5 0.25 Y 2 62.5 i (P5)
−−My−
P 5 500 (P6)
3. a. How does an increase in the tax rate affect the IS curve?
b. How does the increase affect the equilibrium level of income?
c. How does the increase affect the equilibrium interest rate?
Macroeconomics
1. The following equations describe an economy. (Think of C , I , G , etc., as being measured in
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C 5 0.8(1 2 t ) Y (P1)
t 5 0.25 (P2)
I 5 900 2 50 i (P3)
−−G 5 800 (P4)
L 5 0.25 Y 2 62.5 i (P5)
−−My−
P 5 500 (P6)
*An asterisk denotes a more difficult problem.
2. Continue with the same equations.
a. What is the value of aG which corresponds to the simple multiplier (with taxes) of
Chapter 10 ?
b. By how much does an increase in government spending of D −−G increase the level of
income in this model, which includes the money market?
c. By how much does a change in government spending of D −−G affect the equilibrium
interest rate?
d. Explain the difference between your answers to parts a and b .
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C 5 0.8(1 2 t ) Y (P1)
t 5 0.25 (P2)
I 5 900 2 50 i (P3)
−−G 5 800 (P4)
L 5 0.25 Y 2 62.5 i (P5)
−−My−
P 5 500 (P6)
*An asterisk denotes a more difficult problem.
2. Continue with the same equations.
a. What is the value of aG which corresponds to the simple multiplier (with taxes) of
Chapter 10 ?
b. By how much does an increase in government spending of D −−G increase the level of
income in this model, which includes the money market?
c. By how much does a change in government spending of D −−G affect the equilibrium
interest rate?
d. Explain the difference between your answers to parts a and b .
Macroeconomics
2. Suppose the government cuts income taxes. Show in the IS-LM model the impact of the tax cut un-
der two assumptions: (1) The government keeps interest rates constant through an accommodating
monetary policy. (2) The money stock remains unchanged. Explain the difference in results
der two assumptions: (1) The government keeps interest rates constant through an accommodating
monetary policy. (2) The money stock remains unchanged. Explain the difference in results
Macroeconomics
5. What would the LM curve look like in a classical world? If this really were the LM curve that
we thought best characterized the economy, would we lean toward the use of fiscal policy or
monetary policy? (You may assume your goal is to affect output.)
we thought best characterized the economy, would we lean toward the use of fiscal policy or
monetary policy? (You may assume your goal is to affect output.)
Macroeconomics
In the economy of Brightland, the commercial banks have deposits of $600 billion. Their reserves
are $60 billion. All reserves are in deposits with the Central Bank and the commercial banks hold
no excess reserves. There is $120 billion in Central Bank notes outside the banks, and there are no
coins. (5 marks each)
a) What is the economy's monetary base?
b) What is the quantity of money in the economy?
c) Calculate the money multiplier.
d) Suppose the Central Bank of Brightland undertakes an open market purchase of securities of
so that the monetary base increases by $5 billion. By how much will the quantity of money change?
are $60 billion. All reserves are in deposits with the Central Bank and the commercial banks hold
no excess reserves. There is $120 billion in Central Bank notes outside the banks, and there are no
coins. (5 marks each)
a) What is the economy's monetary base?
b) What is the quantity of money in the economy?
c) Calculate the money multiplier.
d) Suppose the Central Bank of Brightland undertakes an open market purchase of securities of
so that the monetary base increases by $5 billion. By how much will the quantity of money change?
Macroeconomics
Consider two alternative programs for contraction. One is the removal of an investment subsidy; the other is a rise on income tax rates. Use the IS-LM model and the investment schedule, as shown in figure 12-9, to discuss the impact of these alternative policies on income, interest rates, and investment.
Macroeconomics
In figure 12-10 the economy can move to full employment by an expansion in either money or the full-employment deficit. Which policy leads to E1 and which to E2? How would you expect the choice to be made? Who would most strongly favor moving to E1 versus E2? What policy would correspond to “balanced growth”?
Macroeconomics
In the text we describe the effect of an open market purchase by the fed.
a. Define an open market scale by the fed
b. Show the impact of an open market sale on the interest rate and output. Show both the immediate and the long-term impacts.
Macroeconomics
Suppose the consumption behavior in problem 1 changes so that C 5 100 1 .9 Y , while
I remains at 50.
a. Is the equilibrium level of income higher or lower than it was in problem 1( a )? Calculate
the new equilibrium level, Y9 , to verify this.
b. Now suppose investment increases to I 5 100, just as in problem 1( d ). What is the new
equilibrium income?
c. Does this change in investment spending have more or less of an effect on Y than it did
in problem 1? Why?
d. Draw a diagram indicating the change in equilibrium income in this case.
I remains at 50.
a. Is the equilibrium level of income higher or lower than it was in problem 1( a )? Calculate
the new equilibrium level, Y9 , to verify this.
b. Now suppose investment increases to I 5 100, just as in problem 1( d ). What is the new
equilibrium income?
c. Does this change in investment spending have more or less of an effect on Y than it did
in problem 1? Why?
d. Draw a diagram indicating the change in equilibrium income in this case.
Finding a professional expert in "partial differential equations" in the advanced level is difficult.
You can find this expert in "Assignmentexpert.com" with confidence.
Exceptional experts! I appreciate your help. God bless you!
#340153 on Dec 2023
#340153 on Dec 2023