Calculate the monetary policy multiplier, Macroeconomics

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Consider the following macroeconomic model:

Y = C + I + G + NX

C = 100 + 0.8 YD

I   =  300 - 1000 i

NX =  195 - 0.1 Y - 100 (E.R.)

E.R. =  0.75 + 5 i

M  =  ( 0.8 Y -  2000 i ) P

G =  200

t  =  0.25

M  =  800

P  =  1.0

Assume that prices adjust according to the following price adjustment equation

                       inflation rate = 0.5(Y-1  -  Y*)/Y*,  where Y* is potential GDP.

(a) Increase government spending by $50 billion starting from potential GDP which is $1200 billion. Calculate the 4-year paths of inflation, the domestic general price level, national output, the interest rate, and the   real exchange rate. [FOR FULL CREDIT YOU MUST SHOW ALL CALCULATIONS].

(b) Calculate the full government spending policy multiplier. [FOR FULL CREDIT YOU MUST SHOW ALL CALCULATIONS]. 

(c) Calculate the monetary policy multiplier. [FOR FULL CREDIT YOU MUST SHOW ALL CALCULATIONS]. 

(d) Calculate the general price level after the economy fully adjusts to the AD shock caused by the increase in government spending, [FOR FULL CREDIT YOU MUST SHOW ALL CALCULATIONS].

(e) Using the goods and services market, the money market, the IS/LM model, and the AS/AD model diagrams, describe the increase in government spending event, including the full adjusment process.

(f) Increase the nominal money supply by $50 billion starting from potential GDP which is $1200 billion. Calculate the 4-year paths of inflation, the domestic general price level, national output, the interest rate, and the real exchange rate. [FOR FULL CREDIT YOU MUST SHOW ALL CALCULATIONS].

(g) Using the goods and services market, the money market, the IS/LM model, and the AS/AD model diagrams, describe the increase in the nominal money supply event, including the full adjusment process.

(h) FULLY ANALYZE AND COMPARE THE TWO FULL ADJUSTMENT PATHS.


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