In the market for money, use a graph to explain the effect of a decrease in the price level on the equilibrium interest rate. 1.) Using the line drawing tool, draw either a new demand or supply curve. Properly label your curve. 2.) Using the point drawing tool, plot the new equilibrium point. Carefully follow the instructions above, and only draw the required objects. How does the change in the interest rate affect planned investment spending, consumption spending, and net exports? The change in the interest rate demonstrated above planned investment spending, consumption spending, and 19 首忌 之 eds net exports. LIID Interest rate 11 MP Real money balances M 下一张

2. An economy is initially described by the following equations: C= 600 + 0.75(Y - T) I= 1,200 – 50i M/P = Y – 200i G= 2000 %3D T= 2000 M = 4,000 P = 2 a. Derive and graph the IS curve and the LM curve. Calculate the equilibrium interest rate and level of income. Label that point A on your graph. b. Suppose that a newly elected president cuts taxes by 20 percent. Assuming the money supply is held constant, what are the new equilibrium interest rate and level of income? What is the tax multiplier? 1 c. Now assume that the central bank adjusts the money supply to hold the interest rate constant. d. What is the new level of income? What must the new money supply be? What is the tax multiplier? e. Now assume that the central bank adjusts the money supply to hold the level of income constant. What is the new equilibrium interest rate? What must the money supply be? What is the tax multiplier?

Consider two alternatives to prepare for retirement: saving in a bank where your funds earn interest and buying fine arts that rises in value over time. each grows your retirement account overtime. A. if the rate of return on fine arts purchases fall, how would you expect the allocation of retirement funds to change across the macroeconomy? B.  if the national savings rate is based on the first option (savings in the bank), then what happens to the national savings rate when the allocation of retirement funds shifts as you describe in your response to part (a)? C.  In addition to art people often purchase real estates, stocks, and or bonds as part of their savings, even though these assets are also not counted in the official data on personal savings. Discuss how these purchases affect the official data on a national's savings rate.

Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to known as the by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase in government purchases on the interest rate and the level of investment spending. Hint: Be sure your final aggregate demand curve (AD3) is parallel to AD₁ and AD₂. You can see the slopes of AD₁ and AD₂ by selecting them on the graph.

Which of the following is true of the circular flow diagram? in a circular flow diagram, saving is a leakage and investment is an injection in a circular flow diagram, saving is an injection and investment is a leakage in a circular flow diagram, saving and investment are both leakages in a circular flow diagram, saving and investment are both injections O O O

As interest rates rise, the effect on aggregate demand is to Select one: a. increase firm borrowing and investment spending. b. increase only firm borrowing. c. reduce consumer borrowing and consumption spending. d. increase consumer borrowing and saving.

Interest rate 3 The graph below illustrates the money demand and investment demand for the economies of Pabst and Kokanee. Pabst Kokanee a. If money supply is increased by 25, what will be the new interest rate? Round your answers to one decimal place. Pabst: % Kokanee: % b. What will be the increase in investment spending as a result of this new interest rate? Pabst: Kokanee: c. If the multiplier is 2 in each economy, what will be the increase in GDP? Pabst: Kokanee: d. In which economy would monetary policy be more effective in closing a recessionary gap? PabstKokanee 3 2 1 10 9 8 MD MS 33 Interest rate 2 1 7 6 (110,1.5) 0 70 80 90 100 110 120 10 20 30 40 50 60 70 80 90 100 Quantity of money Quantity of investment MS MD Kokanee Interest rate 3 10 9 8 2 1 70 90 100 110 120 130 0 Quantity of money 10 20 30 40 50 60 70 80 90 100 Quantity of investment

Exercise 11.11 Optional: Suppose the central bank's monetary policy sets the interest rate accord- ing to the function: i = 3.0+2.0(T – T*) with a* = 4.0, and aggregate expenditure is the sum of: C= 200+0.75Y I = 85 – 2i G= 100 X – IM = 50 -0.15Y-3i (a) What is the equation for the ADA curve? (b) Plot the ADn curve in a diagram, not necessarily to scale, that shows the horizontal intercept and slope of the curve.

Economics 1) Which of the following best describes the multiplier effect A an initial increase in interest rate leads to larger increase in GDB B An Initial increase in aggregate supply leads to larger increase in GDP C an initial increase in goverment income lead to larger increase in GDP D An Initial increase in injection lead to larger increase in GDP 2. the term business sysle refer to the A short term up and down in the economy B. short term up and down in the price level C. long term trend in the price level 2.

1.             Interpret what it means if MPC equals 0.95? 2.             If your MPC is 0.9 and your income falls by $200, what will be your change in spending? 3.             For each of the following determine whether there is movement along a consumption schedule (function), or a shift of the schedule.  If there is a shift then indicate  the direction of the shift and interpret that shift.                    a.      Consumer’s expectations became more optimistic.                     b.     An increase in the interest rate.                     c.     There is a current low level of consumer durables on hand.                     d.     Consumer incomes rise.