Suppose the price level in the economy is fixed at P and the exogenous money supply is given by M, Suppose the LM curve for these values of exogenous variables is drawn as in thefigure below where Y is aggregate output and r is interest rate. Consider two points A and B in the diagram Assuming all exogenous variables remain unchanged, pick the correct relationbetween the nominal money demand Md at point A and point B.Scroll down to view the full image.CA MAYA,TA) > Md(YB, TB)B Md(YA,TA)=Md(YB, TB)M(YA,TA)

Approach to solving the question: Given that all exogenous variables remain unchanged between points…

Answered: Suppose the price level in the economy…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 3SCQ: The short run aggregate supply curve was constructed assuming that as the price of outputs...

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QUESTION TWOConsider a hypothetical economy with the following model.Goods Market Money MarketC = 200 + 0.75(Y − T) (M/P)d = Y − 100rI = 200 − 25? Ms = 1000G = 100 P = 2T = 100A. Derive an expression for the IS curve and an expression for the LM curve. B. On the same set of axes, draw the IS and LM curve. C. Find the level of interest and income that ensures a simultaneous equilibrium in the goods and money market.
Suppose that in Macroland the consumption and the investment have a negative relationship withthe real interest rate and positive relationship with Y. The Central Bank of the country targets acertain nominal interest rate and lets the money supply adjust in order to reach that interest rate.a. Draw a graph of the IS-LM model in this situation.b. Suppose that the Central Bank announces an increase of the interest rate in the future.Represent graphically the initial position of IS-LM curves. Then, show the IS-LM curves of thefuture, after the announced increase in the interest rate is implemented. (Assume that the ISis constant.).c. Suppose that agents today take into consideration the resulting income of the future whendeciding the amount of consumption and investment. Show what happens to the IS-LMcurves today after the announcement of the CB (tip: the CB is NOT increasing the nominalinterest rate today).d. The government decides to step in and avoid any deviation of Y from the initial…
What are the factors other than price that can shift aggregate demand curve interms of investment and consumption? Also explain graphically.
6. Derive the functional form of the IS curve for the following economy: [Hint: Use the equilib- rium condition and isolate Y on LHS and all other terms on RHS, i.e., Y = ISo + IS1(r)] C = C, + C(Y – T),G = Ğ,I = I, – I,(r),T = T
Assume an economy operates in the intermediate range of its aggregate supplycurve. For each of the following changes in conditions, state the direction of theeffect on:1. aggregate demand, 2. aggregate supply, 3. price level, and 4. real GDP. (a) An increase in government expenditure in infrastructureClick or tap here to enter text.(b) A severe recession occurs in a country, which has been a major importer of thenation’s exports.Click or tap here to enter text.(c) The federal government increases business taxesClick or tap here to enter text.(d) The Central Bank increases the cash interest rate
Assume that an economy operates according to the sticky-wage model. The nominal wagewas set to make labor supply and labor demand equal when the expected price levelequaled 120 (as measured by the consumer price index).a. Use a graph of the labor market to illustrate what happens to the quantity oflabor employed if the actual price level over the time period when wages arestuck equals 110.b. Use a graph of the production function to illustrate how the quantity of outputproduced changes if the actual price level equals 110 when the expected pricelevel is 120.c. Given the unexpectedly low price level, will this economy be operating above,below, or at the natural rate?
In our four main macroeconomic models, which of the following statements is false? O Our macro models are all short-run models O The goods and services market is represented in all four models O Output is a variable to be determined O Output is an exogenous variable
Identify which curve on the previous graph corresponds to each of the following descriptions. If the curve described is not shown on the graph, choose Not Shown. In the descriptions, AD represents aggregate demand; SRAS represents short-run aggregate supply; LRAS represents long-run aggregate supply. Description SRAS if the expected price level is 50 SRAS if the expected price level is 70 SRAS if the expected price level is 60 LRAS AD a O O O b O O O O O с O O O O O d O с O O Not Shown O O O O Suppose the economy is currently in short-run equilibrium at point L. In this case, the economy is producing at an output level potential output. At current prices and wage levels, real wages are what firms and workers expected when they agreed on wage curve to shift to the contracts. In the long run, if the price level and the nominal wage are both flexible, wages will, which will cause the . Assuming the other two curves do not change, the economy will reach a new equilibrium at an output of…
Use the Aggregate Supply and Aggregate Demand Model below to answer thequestions that follow Examine the influence of government expenditure on investment in a nation.Use Jot Inc. Ltd a multinational construction company in which you are theChief Exec of the firm that that is highly diversified and receives funds toconstruct highways and other government-funded projects. Also, explain thefactors that cause the Aggregate Demand curve to be downward sloping leftto right
1. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables beha independently of one another. For example, an increase in the money supply, a variable, will cause the price level, a variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a variabl The distinction between real variables and nominal variabl is known as ▼ However, in the short run, most economists believe that re and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggrega supply (AS) diagram-it needs appropriate labels for the ax and curves. In the questions that follow you will identify so of the missing labels. X AD HORIZONTAL AXIS VERTICAL AXIS The…
Assume an economy operates in the intermediate range of its aggregate supplycurve. For each of the following changes in conditions, state the direction of theeffect on:1. aggregate demand, 2. aggregate supply, 3. price level, and 4. real GDP. a) The Central Bank increases the cash interest rate i need ans of this too.
Use the following diagram to answer this question Price level or GDP deflator Ro 41- SRAS₂ ----- AD₂ SRAS, SRAS, -11110 AD₁ AD₁ Output or RGDP Suppose the short-run macroeconomic equilibrium is at point A. In the short run, an open market sale would move the equilibrium to: O A. point E OB. point C O C. point H O D. point B 10

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