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Part 1: In class we built the IS-LM model using graphical representations. Below see if you can derive the formation of the model algebraically: C = 0.5(Y –T) T = 2000 I = 3,000 – 250r G = 3,000 Md/P = 0.5Y – 500r Ms/= 2,000 P=2 (a) Write a formula for the IS curve (Y as a function of r alone). Remember IS is based on demand. (b) Write a formula for the LM curve (Y as a function of r alone). Remember LM is based on money market equilibriums. Hint: substitute out M/P. (c) Sketch and label the two curves on a graph (d) What is the short run equilibrium values of Y, r and national savings? Part 2: (a) Using the same information from Question 1, what is the government expenditure multiplier? (b) Based on the multiplier found in (a) how much would GDP increase buy if government spending increases by 1,500 (ignore money demand effects (no change in r)). (c) Use the IS-LM model from question 1, how much is the short run equilibrium if Government spending increases by 1,500 (consider money demand effects)? Sketch a graph of these results. (d) What monetary policy could be implemented in order for the government stimulus to have its full multiplier effect (don’t have to give a numerical answer just a policy)? (hint: think of what you would want to do with the LM curve)
Use the following FOC for schooling: f'(s) = r(f(s) + c(s)), in which s is total time in school (e.g., years of school attained), f(s) is the adult wage while working, and c(s) is the direct cost of school (tuition, transport, uniforms, etc.). For th..
Using the fundamental equations from the general monetary approach, describe how each of the following will affect the home and foreign price level, real money balances, and the exchange rate, EH/F . Also, state whether the home currency appreciates ..
Explain the connections between opportunity cost and the production possibilities frontier.
q.hana takes two examinations. her overall grade for the course will be the maximum of her scores on the two
Consider Solow's model when the production function is Y = 1000K0.3L0.7. The population growth rate is 2%, ? = 0.1 is the depreciation rate and s = 0.25 is the savings rate. Compute how much more output there is in this economy immediately thanks to ..
At the moment, the market is completely ignoring things like record US trade deficits and the widening current account deficit. It is also largely ignoring the possibility of Federal Reserve rate cuts. Traders and investors are instead focusing only ..
The owner of a corner lot wants to find a use that will yield a desireable return on his investment. If the owner wants a minimum attractive rate of return on his investment of 15%, which of the two alternatives would you recommend?
Ten firms compete in a market to sell product X. The total sales of all firms selling the product are $1,500,000. Ranking the firms’ sales from highest to lowest, we find the top four firms’ sales to be $225,000, $195,000, $165,000, and $110,000, res..
The largest component of total spending is
Calculate the net present value of the difference between the average salary of a high school graduate and the average salary of a collge graduate between 22 and 65 years old. How does this compare to the tuition cost over four years? Make sure to di..
Why is it often difficult to develop a realistic analysis?
Find out the most recent data for Bolivia that can be used to compute its new human development index (NHDI). Make a table to table to record data/values of different components of NHDI of Bolivia and the year of the data. Use your data to compute NH..
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