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Assuming this is an IS-LM model
a. Suppose that households are concerned about the future and cut back on their marginal propensity to consume from 0.80 to 0.667. Try this experiment for the Money Supply Target case and the Interest Target Case. What happens to the multiplier? What happens to the slope of the IS curve. What happens to the equilibrium level of income or output and the interest rate? Explain this intuitively.
b. Suppose that households become less uncertain about the future and decide to hold more cash transactions demand for money. They do this reducing autonomous money demand from 30 to 20. Try this experiment for the Money supply Target case and the Interest Target Case. What happens in the money market? What happens to the slope of the LM curve. What happens to the equilibrium level of income or output and the interest rate? Explain this intuitively.
c. Now consider the situation in part a) for the decline in the marginal propensity to consume in the Money supply Target case and the Interest Target Case. Use your intuition and graphical skills. Construct an ISLM curve equilibrium at the base case values of Y=2422.22 and i = 16.56%. Have the IS curves intersect the LM curve at the same equilibrium. The government implements a stimulus package increasing government spending. Show how this shifts the IS curves and the respective new equilibrium Y and i. In the two cases,(Hint: Draw a separate graph for each targeting case.) is fiscal policy more effective or less effective with the new IS curve?
Q= -3 + 8.5L - 2L^2 Q is toys per hour, L is workers employed per hour. Charges $20 per toy. Workers paid $10 hour. Firm has $50 fixed costs per hour. What is marginal product labor (MPL) What is marginal revenue product
For simplicity, assume MSRP is the cash purchase price. The vehicle will be driven 1,000 miles per month and you hope to can sell either vehicle after 36 months for 70% of the purchase price (use the MSRP). Sales tax of 8.4% is paid at time zero a..
In a competitive market, the market-determined price is $60. For a typical firm producing 100 units of output, short-run marginal cost is constant at $65, average total cost is $95, and average fixed cost is $30. Is this firm making the profit-max..
A family wants to start an education account in 2010 (1st payment at year end 2010) by making equal annual payments in constant 2010 dollars until the time of the last tuition payment. Calculate the equal annual constant 2010 dollar payment.
In the week of February 9-15, the rose market cleared at a price of $1.00 per stem and 4,000,000 stems were sold that week. During the week of June 5-11, the rose market cleared at a price of $0.20 per stem and 3,800,000 roses were sold.
A. If the interest rate is 35%, what is the maximum you can spend in the current period B. If the interest rate was lower, you probably would be able to spend more than that. What would be the maximum interest rate that would allow you to spend $2..
The Lone Pine Gold Company (LPG Co.) purchased its corporate headquarters office building for $390,000 in Lone Pine, California on May 18, 2002. After some remodeling and refurbishing that cost $56,000, the company placed this building in service ..
A local bank advertised the following information: interest 6.89% - effective annual yield 7.128% . no mention was made of the interest period on the advertisement. Can you figure out the compounding scheme used by the bank
Suppose equilibrium exists in the market for loanable funds. Use the following information to determine the quantity of funds supplied in this market. GDP $8.7 trillion Consumption Spending $3.5 trillion Taxes minus Transfers $2.7 trillion
Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying. a.) Draw Maria's production possibilities frontier for reading economics and sociology.
Gary and Diane must prepare a presentation. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Gary 10 hours to do the required calculation and 10 hours to prepare the slides.
How do you calculate price elasticity of demand If 50 Units of a good are demanded at a price of $1 per unit. A reduction in price to $0.20 results in an increase in quantity demand to 70 Units. Show that these data yield a price elastity of $0.2..
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