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- Assume the following information for a closed economy operating within the Keynesian IS-LM framework: C = $200 + 0.6Yd C = consumption Yd=disposable income I = investment I= $270 - 9r r = interest rate G= $400 G = government expenditure %3D T= 0.4Y T= taxes an fo be cl Y = aggregate income M" = money demand Md = $90 + 0.3Y- 5r I MS= $450 M = money supply Problems & Questions: Derive and state the equations for the IS and LM curves, and present these curves graphically. Show the steps of your work and identify clearly the respective intercept as well as slope of both curves. a. b. Find values of aggregate income (Y) and interest rate (r) that equilibrate the goods market and money market simultaneously, and show these equilibrium values on a well-labeled graph (diagram). Show clearly how you have found your answers. c. If the autonomous component of investment increases by $50, how would your answer to part (a) change? Explain and show graphically.Sunshine is a small open economy described by the following long-run classical equations where Y is the economy's real GDP, T-taxes, G-government spending, NX-net exports, l-investment, C-consumption, r-domestic interest rates, r* - world interest rates. Y = 4000 G = 1250 T = 1000 C = 250 + 2/3 (Y-T) I = 450 - 25r NX = 1250 - 175epsilon r =r^ * =4 a) Required: Select the appropriate answer that represent [i] investment, [ii] national savings, [iii] equilibrium exchange rate and [iv] trade balance. b) Suppose the government of sunshine cut its spending to 2,000. Required: Select the appropriate answer that represent [i] investment, [ii] national savings, [iii] equilibrium exchange rate and [iv] trade balance. c) Now suppose the world interest rate falls from 8 to 3 percent, (G is again 2000). Required: Select the appropriate answer that represent [i] private savings, [ii] public savings, [ii] national savings, [iv] investment, [v] trade balance and [vi]…Consider a closed economy in which: C=250+0.8 (Y-T)I=400−30 rT=150G=220Y=C+I+G where Y is GDP, C is consumption, I is investment, T is taxes, G is government purchases, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 3,000. a. Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 3 percent, so r = 3. Solve for GDP (Y). Y=______ b. How much is the private saving (SPVT)? SPVT=______ c. How much is the government spending multiplier (k)? k=______ d. Assuming no change in monetary policy, what change in government purchases (ΔG) would restore full employment? ΔG=______ e. Assuming no change in fiscal policy, what change in the interest rate (Δr) would restore full employment? Δr=______
- Sunshine is a small open economy described by the following long run classical equation where Y is the economic real GPD,T-taxes,G-government spending,NX-net exports,I- investment, C-consumption r-domestic interest rates, r*world interest rates. Y=8000 G=2500 T=200 C=500+2/3(Y-T) I=900-50r NX=1500-250£ r=r*=8 a) find the trade balance, investment, national savings and the equilibrium exchange rate. b) the government of sunshine cut its spending to 2000.compute the investment,trade balance, national savings and the equilibrium exchange rate. C) now suppose the world interest rates falls from 8-3 per cent (G is again 2000 ).compute private savings public savings, national savings,investmentents,trade balance and the equilibrium exchange rate..Discuss in detail the limitations of the IS-LM Model. Why is it unrealistic for today's economies?PDFps9.pdf 2 of 3 + File | C:/Users/Wiam/Downloads/ps9.pdf Q LRAS 2) Suppose a country begins in full equilibrium in the AS-AD model at point A: P 1 W A SRAJ T * בר The country has a large agricultural sector this could be a developing country where agriculture still has substantial weight in GDP. The country relies on a large dam for much of the water supply it uses for irrigation. A serious accident damages the dam. The water flow will be substantially curtailed for years. a) Use your diagram to illustrate the effect of the accident on the economy in the long run. Make any assumptions you think are necessary. b) You are a central banker in this country. What are your concerns? Do you worry about YR? About P? If you were to adopt policies to address these concerns, is there a tradeoff in terms of dealing with these two? Illustrate with your figure. 3) Suppose that the country in the problem above the one that suffers from the dam accident is a Malthusian economy. That is, assume the…
- The IS-LM model for a closed economy is given below, where Y is the output, C is the consumption, I is the investment, T is the income tax, Md is the money demand, P is the price level, r is the real interest rate, n is expected inflation rate and G is the government expenditure. C = 200 + 0.8 (Y – T) – 500 r 1 = 200- 500 r %3D T = 20 +0.25 Y %3D Ma = 0.5 Y- 250 (r+n°) If G= 196, n° 0.1, the nominal money supply equals 9890 and the full %3D employment output equals 1000, the full employment equilibrium price level in (in integer) the economy isAssume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y By how much will the equilibrium level of income (Y) and the interest rate (i) change, if the Fed responds to an increase in government purchases of 160 by increasing nominal money supply to M' = 1,100?Suppose that the Bank of Canada creates a new electronic Loonie. This new system allows everyone in Canada to make and receive instant payments with minimal fees. What impact would this have in the IS-LM model? In particular, explain how would it affect consumption and investment.
- Explain how the Keynesian view differs from the classical view with respect to saving. Explain further how the two views differ with respect to investment.I have to analyze, using the IS-LM model, the macroeconomiceffects of an increase in savings in the short term and its implications for long-term growth. Specifically, I have to suppose that households (consumers) lose confidence and start saving more for any level of disposable income. The question is: Using the IS-LM model, show the effect of an increase in saving on production,investment and consumption, assuming that the Central Bank modifies the money supply when income changes, so that the LM curve is flat.Assume the following model of the economy C = 60 +0.75(Y – T) I = 45 – 5r G = 40 and T = 40 MS 110 P = 1 (fixed) (M/P)D = 0.5Y – 5r, - where C=consumption spending, Y=income, |=investment spending, r=the interest rate, G=government spending, T=taxes. MS=the money supply, P=the price level, and (M/P)D is real money demand. (a) Write the equations for the IS and LM curves and sketch these functions. Solve for the equilibrium values of Y and r and include these values in the graph.