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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?
Tina hires Jeff to do odd jobs around her home and agrees to pay him $5 per hour. Tina further agrees to guarantee Jeff at least 40 hours of work per week, and to pay him 1.5 times his base pay for any hours worked beyond 40. If Jeff works 45 hour..
An economy is currently made up of a firm that produces bread, a firm that produces butter, and a consumer who consumes both bread and butter. Current production is 100 units of bread, 50 units of butter which the consumed by the consumer.
In Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result the quantity demanded of HoHo's decreased from 120 to 100. What would be the appropriate elasticity to compute Use the midpoint method, compute this elasticity. What does yo..
What is the probability that Z is smaller than 1.02? b.) What is the probability that Z is greater than 0.65? c.) What is the probability that Z is between -2 and -0.5? d.) What is the probability that the interval [Z-1, Z+1] contains the value 0?
where QI refers to the number of games they would play if the price of a game were PI. Because of their access to credit, they would be willing to pay an up-front fee to join the club. Wizards live from pay check to paycheck and would be willing t..
Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk rose 80 silk leaves, what is the opportunity cost of producing additional 10 silk roses
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Suppose the demand function for a firm's product is given by In Qdx=3-0.5 In Px-2.5 In Py In M 2 In A Where Px= $10, Py= $4, M= $20,000, A= $250 A. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic, or unita..
Suppose that the natural rate of unemployment in a particular year is 5 percent and the actual rate of unemployment is 13 percent. Use Okun's law to determine the size of the GDP gap in percentage-point terms.
consider the following cobb-douglas production function for the bus transportation system in a particular city: Q = aL(B1)F(B2)K(B3) where L = labor input in worker hours F = fuel input in gallons K = capital input in munber of buses Q = output me..
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A university planner wants to determine the proportion of spring semester students who will attend summer school. She surveys 32 current students discovering that 12 will return for summer school. With a 0.95 probability
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