1. Suppose you read in the newspaper that prospects for stronger future economic growth will lead the dollar to strengthen and stock prices to increase. a) Comment only on the effect of the strengthened dollar on the IS curve. b) Comment only on the effect of the increase in stock prices on the IS curve. c) What is the combined effect of these two events on the IS curve?
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- Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-691. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States? Question 54 options: Make it rise which by itself would increase U.S. aggregate demand. Make it rise which by itself would decrease U.S. aggregate demand. Make it fall which by itself would increase U.S. aggregate demand. Make it fall which by itself would decrease U.S. aggregate demand.3. Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) I = 400 – 15r M/P = 200 + Y – 100r P G = 150 T = 100 M = 2000 P=2 Where C is planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. c) The government reduces taxation to T=50 in order to boost economic activity. Assume no changes in the values of all the other variables. 1. What is the immediate increase in income before the economy adjusts to its new equilibrium? 2. What are the economy's equilibrium level of output Y and interest rate following the cut in taxation? Compute the equilibrium level of consumption and investment spending. With the help of the IS/LM graph, carefully explain what happens to the economy following the cut in taxation.Assume the economy starts at full-employment. There is a global pandemic. Which of the following will happen as a result of the pandemic (only the pandemic): Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a interest rates increase, aggregate expenditures decrease, prices decrease and output decreases interest rates decrease, aggregate expenditures increase, prices increase and output decreases C interest rates do not initially change, aggregate expenditures decrease, prices decrease and output decreases d interest rates do not initially change, aggregate expenditures increase, prices increase and output increases
- Assume the economy starts at full-employment. There is a global pandemic. Which of the following will happen as a result of the pandemic (only the pandemic): Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a interest rates increase, aggregate expenditures decrease, prices decrease and output decreases b interest rates decrease, aggregate expenditures increase, prices increase and output decreases с interest rates do not initially change, aggrega expenditures decrease, prices decrease and output decreases interest rates do not initially change, aggregate expenditures increase, prices increase and output increasesIf investment spending on net adds to the capital stock, we would expect that a-at first aggregate supply increases and later aggregate demand increases b-output would decline c-both aggregate demand and aggregate supply increase simultaneously d-at first aggregate demand increases and later aggregate supply increasesConsider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) 1 = 400 – 15r M = 200 + Y – 100r G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. Department of Economics a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.
- Explain if Alessandria would be more or less willing to buy a new car (for example, a Fiat Panda) under the following circumstances: a. She just inherited €200,000 from her aunt. b. Prices in the stock market become more volatile. c. She expects car prices to fall. d. She expects the aerospace company Leonardo’s stock to triple in value next yearConsider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8(Y-T) I= 500-10r - M P 1. = = 0.1Y - 35r Where C is planned consumption, / is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. 2. G = 800 T = 200 M = 1000 P = 2 b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. c) Due to some negative news concerning the impact of global warming on the economy, consumers are becoming more pessimistic about the future to the point of reducing autonomous consumption by 50. What is the immediate impact on income before the economy adjusts to its new equilibrium? What are the economy's equilibrium level of…DRAW a diagram for each of the following events, does the dollar rise or fall in value? MUST include a separate diagram for each: a) A recession occurs in the United States, lowering U.S. income. b) An economic boom increases income in China. c) U.S. interest rates decrease. d) Interest rates decrease in all countries e) Interest rates rise in Europe and Asia, but not in the United States. 2
- QUESTION 7 As a result of entering the world economy, Neverland experiences economic boom and its GDP goes up to y=13250: The functions that describe consumption and investment are still the same: cd () = 5000 – 1000r +0.25Y and 1d() = 500 – 1800r+0.2Y: Government spending is also the same: G=1800- What is Neverland's current account balance? Note: Type in your answer approximated to two decimal points, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard will automatically delete it and you should not do anything about it.In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a)First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b)Draw an IS-MP diagram that’s consistent with the state of the U.S. economy in 2009. Make sure that your IS and MP curves intersect in a place that is consistent with the setup of the problem, above. In particular, do your IS and MP curves intersect on the flat part of the MP curve, or the upward-sloping part? And do your IS and MP curves intersect at a positive real interest rate or a negative real interest rate? c)Suppose that the U.S. Congress and President pass a fiscal stimulus package that increases government spending.…Refer to the figure at right. Suppose the equilibrium moves from E' to E. An event that could have caused this movement is A. an increase in the perceived stability of the U.S. economy. B. an increase in U.S. productivity. C. an increase in the real interest rate in the United States. D. an increase in demand for Japanese−produced goods by U.S. residents.