M f. Now suppose that the money supply increases to = 1,840. Solve for Y, i, C, and I, P and describe in words the effects of an expansionary monetary policy. M equal to its initial value of 1,600. Now suppose that government spending P increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, and C. g. Set
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- COURSE: MACROECONOMICS - IS-LM MODEL Demonstrate under the assumptions of the IS-LM model the effect of having a consumption function with an exogenous component, an income-dependent part and a part that depends on the interest rate. Graph1- Consider the following IS-LM model: I= 150 + 25Y - 1000i, (M/P 2Y 8000i, G=250, T= 200 C=200 + 25YD. NX 0, M/P = 1600. a) Derive the IS relation b) Derive the LM relation. c) Solve for equilibrium real output (Y*). d) Solve for the equilibrium interest rate (i*) e) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. ) Now suppose that the money supply increases to M/P =1,840. Solve for Y, i c, and T, and describe in words the effects of an expansionary monetary policy. g) Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, 1. C. h) The expansionary fiscal policy in part (g) have resulted in large budget deficit (T= G = 200 – 400 = -200). Suggest a policy mix to decrease fiscal deficit to achieve a balanced budget (T = G = 0). b(Ctrl) - 立Question: Consider the IS-LM model derived. Suppose the economy of Economica is initially at the general equilibrium. Suppose further that the government considers the increase of the effective tax rate on capital and hires you as a consultant. a. Explain and show graphically how an increase in the effective tax rate on capital would affect the labor, goods, or the asset market. b. Explain and show graphically how an increase in the effective tax rate on capital would affect the short-run equilibrium. c. Explain and show graphically how an increase in the effective tax rate on capital would affect the long-run equilibrium.
- a) consider the following IS–LM model: C = c1(Y - T) I = b1Y - b2i M/P = d1Y - d2i Solve for equilibrium output. Assume c1 + b1 < 1. b) Solve for the equilibrium interest rate. (Hint: Use the LM relation.) c) Solve for investment.Assume the equations for the IS curve and LM curves for an economy are:Y= 1,600 – 50rr=Y/50 - 12.(a) Derive and interpret the slopes of the IS and LM curves above. Is the IS curve flatter thanthe LM curve? Explain.(b) Find the equilibrium levels of income (Y*) and the interest rate (r*).(c) How would your answers in part (b) above change if the government increases itsexpenditure by 700 unit which is financed by an increase in lump sum taxes of 500 unitsand an increase in the money supply of 200 units? Assume the following functions:C= 700+0.8YdI=200-25rT=120+0.25YL=2Y-50rII. Consider the following IS-LM model: C = 200 + 0.25Y, I = 150 + 0.25Y – 1,000i %3D G = 250 T = 200 (M/P)d = 2Y – 8,000i M/P = 1,600 a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.) b. Derive the LM relation. (Hint: It will be convenient for later use to rewrite this equation with i on the left side and everything else on the right.) c. Solve for equilibrium real output. (Hint: Substitute the expression for the interest rate given by the LM equation into the IS equation and solve for output.) d. Solve for the equilibrium interest rate. (Hint: Substitute the value you obtained for Y in part (c) into either the IS or LM equation and solve for i.) e. Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. f. Now suppose that the money supply increases to M/P = 1,840. Solve for Y, i, C, and I, and describe in words the effects of an expansionary monetary policy. g. Set M/P…
- Suppose the economy of Ghana in 2020 was characterized by C = ¢400m + 0.75(Y-T); I = ¢400m - 20r; G = ¢200m; T = ¢200m; Ms = ¢250m/P; Md = 0.25Y - 10r a. Derive the IS and LM curve equations. Give a brief explanation as to why they are positively or negatively sloped. b. Calculate equilibrium output and interest rates (in this case assume P=1). Econ313 2020/2021 PROBLEM SET 2 Page 1 of 2 c. Suppose the government of Ghana in the second half of 2020 spent an additional ¢50m to mitigate the impact of the COVID pandemic on households and businesses and government tax revenue declined by 10% as a result of the lockdown in Ghana what will be the new equilibrium output? d. Will the policy in (c) above have an impact on interest rate? Briefly explain. e. What is the amount of the fiscal deficit incurred as a result of the government fiscal policies as pursued in (c) above?Consider the following IS–LM model: C = 100 + .25YD I = 50 + .25Y - 1000i G = 150 T = 100 (M/P) d = 2Y - 8000i (M/P)s = 1000 a. Derive the IS relation b. Derive the LM relation c. Solve for equilibrium real output. d. Solve for the equilibrium interest rate e. Solve for the equilibrium values of C and I f. now suppose that the money supply increases to M/P = 1010. Solve for T, f. suppose that government spending increases to G = 155 What is the value of money supply? g. From what we studied, which policy, expansionary fiscal policy or expansionary monetary policy will undoubtedly increase investment.QUESTION TWOConsider a hypothetical economy with the following model.Goods Market Money MarketC = 200 + 0.75(Y − T) (M/P)d = Y − 100rI = 200 − 25? Ms = 1000G = 100 P = 2T = 100A. Derive an expression for the IS curve and an expression for the LM curve. B. On the same set of axes, draw the IS and LM curve. C. Find the level of interest and income that ensures a simultaneous equilibrium in the goods and money market.
- Economics Suppose that the effects of COVID-19 on the economy can be thought of as a permanent negative productivity shock, i.e., a permanent decrease of the production owing to lower total factor productivity. What does the model predict will happen to the following variables: (1) real interest rate, (2) real output), (3) real consumption, (4) real investment, (5) labor input? For each variable explain why COVID-19 would have the predicted effect.Suppose the economy begins with output equal to its natural level. Then there is a decrease in consumer confidence, as households attempt to increase their saving, for a given level of disposable income. In AS-AD and IS-LM diagrams, show the effects of the decline in consumer confidence in the short run and the medium run. Explain why curves shift in your diagrams. Please please please put a picture of the diagrams! Thank you so much Please give me correct answer with full expalanation and carefullly draw otherwise i give multiple downvote.Suppose that a recession overseas causes foreigners to buy fewer goods from our country . Using IS - LM model for a close economy , answer the following questions : a . How does it affect IS curve and LM curve ? explain why ? b . What are the changes in total output , real interest rate , consumption , investment of the economy ? explain why ? c . Draw IS - LM graph to demonstrate your answer ?