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8) ‘The LM curve shows points of equilibrium, but the TR curve shows policy responses.’ Explain in detail what this statement means.
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- With the use of a graph explain the vertical and horizontal cases of the LM curve and show which policy is ineffective under each case.Assume that the general level of prices increases. Which of the following best describes what happens to the money market, AE model and AD curve? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. We shift the AD curve to the left because the interest rate increases, the aggregate expenditures curve decreases and a equilibrium Y decreases. We shift the AD curve to the right because the interest rate decreases, the aggregate expenditures curve increases and b equilibrium Y increases. We move along the AD curve because the interest rate decreases, the aggregate expenditures curve increases and equilibrium Y increases. We move along the AD curve because the interest rate increases, the aggregate expenditures curve decreases and d equilibrium Y decreases.Assume an economy is currently operating at point A and answer the following question. Q. What key policy recommendations would you make for an economy like this one that is currently operating at point A? Illustrate using the IS-LM model how the policy recommendations you provide will impact the economy. On your diagram indicate the new point that the policy takes the economy to and label this as point B.
- Assume that the general level of prices increases. Which of the following best describes what happens to the money market, AE model and AD curve? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a We shift the AD curve to the left because the interest rate increases, the aggregate expenditures curve decreases and equilibrium Y decreases. We shift the AD curve to the right because the interest rate decreases, the aggregate expenditures curve increases and equilibrium Y increases. с We move along the AD curve because the interest rate decreases, the aggregate expenditures curve increases and equilibrium Y increases. We move along the AD curve because the interest rate increases, the aggregate expenditures curve decreases and equilibrium Y decreases.Suppose that with the liquidity facilities and asset purchase programs, the Bank of Canada increased the money supply. How do you expect this to affect consumption and investment in equilibrium?Westeros has recently discovered a new technology that would potentially increase profit for most firms. As a result, investment increases. a. In a Keynesian cross model, graph the changes and predict what will happen to equilibrium GDP. b.What happens to the IS curve? Will it shift or will there be a movement along the curve? Graph it and explain. c. In an IS-LM model, using the same graph, predict what happens to the equilibrium interest rate and GDP. d. Is the change in GDP you predicted in part c identical in size to the change in GDP you predicted in part a? Why or why not?
- Consider an IS-LM model. Suppose the central bank increases the money supply by 5 percent. But the price level also increases increase by 10 percent. A) What will be the change in LM curve? What will be the change in equilibrium interest rate and output? Explain properly using a graph? B) What will be the change in the AD curve? (Hint: first derive the AD curve from IS-LM modeland then consider whether AD will shift to the left or right given the change in LM curve) Given that the SRAS curve is horizontal, what will be the impact of change in AD on price level?Explain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve.18. If more American tourists visit South Africa. The of dollars increases and the dollar in the rand/dollar exchange rate A Supply; depreciates Demand; depreciates C upply; appreciates Demand; appreciates 19. In balance-of-payments accounting, the sale of a foreign production facility by a SA firm is a item in the SA balance of payments; the deposit of funds in a foreign bank account by a SA citizen item in the SA balance of payments. A Debit; also is a debit В Debit; is a credit C Credit; is a debit D Credit; also is a credit 20. The table below shows a section of the national accounts for a small country in 2018. Answer the question that follows using the information provided in the table. 9 800 Consumption expenditure Government expenditure 3 500 Depreciation Exports Imports Gross capital formation (investment) Primary income payments Primary income receipts 500 2 200 1 900 2 500 300 200 The value of Gross Domestic Product (GDP) is: (4r A 16 100 B 19 900 C 16 600 D 15 600 21. To…
- You are given the following information regarding a hypothetical economy: Consumption function is C= 0.3+0.8(Y-T) Investment I=3.5- 50i G= 3 T= 2.5 The demand for real money is M/P=2+0.2Y-50i. The real stock of money is 3. Answer the following questions: Derive the IS Curve а. b. Derive the LM Curve What are the equilibrium equilibrium output and interest rate? с.11. Complete the following sentence: In terms of the AD-AS model, a decrease in the interest rate leads to a(n) investment spending,a(n) demand and, eventually to a(n)_ in the price level. in in aggregate in aggregate spending, a(n) in total production and (or) a(n). (4 A Decrease; decrease; decrease; decrease; decrease B Increase; increase; increase; increase; increase C Increase; increase; decrease; decrease; decrease D Decrease; decrease; increase; increase; increase 12. A justification for government intervention in the economy arises from the fact that market systems usually produce outcomes, but they do not necessarily produce _outcomes. (- A Efficient; equitable B Equitable; efficient C Efficient; profitable D Profitable; equitable 13. When the govermment uses its overdraft facilities at the central bank, it, in the economy. This is called , the quantity of money financing. A Increases; deflationary B Decreases; inflationary C Decreases; deflationary Increases; inflationaryRead the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the AD/AS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from FOMC Statement Released December 16, 2008 “The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to ¼ percent. Since the Committee’s last meeting labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.” Identify whether the policy action is fiscal or monetary. Identify whether the policy action is expansionary or contractionary. Draw and label the change…