Figure 1: Shift of s d as G increases S d (G=110) r S d (G=100) S d = 0.5Y+0.5T rG. I d : r. Figure 2: Shift of IS as G increases


 John Wilfrid Harvey
 1 years ago
 Views:
Transcription
1 Economics 154a, Spring 2005 Intermediate Macroeconomics Problem Set 8: Answer Key April 11, Do numerical problem #4 on p. 425 in Chapter 11 of the textbook: An economy is described by the following equations: Desired Consumption C d = (Y T ) 300r... (a) Write the equation for the aggregate demand curve.... ANSWER: The IS curve is given by Y = C d + I d + G = (Y 100) 300r r = Y 400r. This can be rewritten as 0.5Y = r, or Y = r. The LM curve is M/P = L, or 6300/P = 0.5Y  200r. To find the aggregate demand curve, substitute the LM curve into the IS curve to eliminate r. To do this, multiply both sides of the LM curve by 4 to get 25, 200/P = 2Y 800r, or 800r = 2Y (25, 200/P ). Then substitute this in the IS curve: Y = r = 900 [2Y (25, 200/P )]. This can be rewritten as 3Y = (25, 200/P ), or Y = (8400/P ). (b) Suppose that P=15. What are the shortrun values of output, the real interest rate, consumption, and investment? ANSWER:With P = 15, the AD curve is Y = 300+(8400/15) = 860. From the IS curve, 860 = r, which has the solution r = Consumption is C = ( ) ( ) = 665. Investment is I = 100 ( ) = 95. (c) What are the longrun equilibrium values of output, the real interest rate, consumption, investment, and the price level? ANSWER:In the long run, Y = 700. From the IS equation, 700 = r, which has the solution r = The LM curve then is 6300/P = ( ) ( ) = 300, which has the solution P = 21. Consumption is C = ( ) ( ) = 525. Investment is I = 100 ( ) = 75. In addition, do part (d) below: (d) Suppose that the economy is the longrun equilibrium in part (c) and G increases from 100 to 110 (T remains fixed at 100). Determine the new shortrun equilibrium values of Y, r, C, and I (P remains fixed at its initial value). Calculate the 1
2 multiplier on government spending (i.e., the change in Y divided by the change in G). In addition, graph the Id, Sd, IS, and AD curves and show how they shift when G increases from 100 to 110. ANSWER: With P at 21 from part (c), an increase in G of 10 leads to a shift out and up of the IS curve, and to a temporarily higher output level. The IS curve is now Y = (Y T ) 400r or Y = r. The LM curve does not move in the short run, so that it is still Y = r. The equilibrium point is therefore found where r = r, so that r = 320/1200 = This implies output is Y = (320/1200) = Then C = ( ) 300(0.266) = and I = (0.266) = Overall, output increased by 6.6 dollars for 10 dollars of extra government expenditures which implies a multiplier of 6.6/10=66/Figures 1,2 and 3 depict the movements of the S d, IS, and AD curves. Figure 1: Shift of s d as G increases S d (G=110) r S d (G=100) S d = 0.5Y+0.5T rG I d : r I d,s d Figure 2: Shift of IS as G increases G r IS (G=110) IS (G=100) B LM: Y= r A IS: Y=700+2G800r Multiplier= Y/ G Y Y 2
3 Figure 3: Shift of AD as G increases P LRAS: Y=700 A B SRAS: P=21 AD: 3Y=700+2G+25200/P AD(G=100) AD(G=110) Y (e) Optional bonus question: How do your answers in part (d) change if T increases at the same time as G so as to keep the governments budget balanced? ANSWER: In this case the government expenditure is offset by an increase in taxes. This implies that the increase in aggregate demand is smaller than before. The IS curve is now Y = (Y 110) 400r or Y = r. Then, equilibrium r is r = 310/1200 = and output is Y = the multiplier is now only 33.3%. Also, consumption decreases further, to C = ( ) 300(0.258) = although investment does not decrease as much, falling only to I = (0.258) = Do analytical problem #5 on p. 466 in Chapter 12 of the textbook. To fight an ongoing 10% inflation the government makes raising wages or prices illegal. However that government continues to increase the money supply... (a) Using the Keynesian ADAS framework, show the effects of the government s policies on the economy... ANSWER: Figure 4 shows the effects of increasing the money supply while holding the price level constant. Beginning at point A, the intersection of aggregate demand curve AD 1 and shortrun aggregate supply curve SRAS 1, the increase in the money supply shifts the aggregate demand curve to AD 2. Since prices cannot rise, the shortrun equilibrium is at point B, with output above its fullemployment level. (b) After several years in which the controls have kept prices form rising, the government declares victory... 3
4 Figure 4: Increasing money supply with constant price level ANSWER: When the price controls are removed, the price level will jump up, with the shortrun aggregate supply curve shifting to SRAS 2. The new equilibrium is at point C, where there is full employment. 3. This problem studies the dynamic behavior of a macroeconomic model that consists of three equations: Okuns law, an aggregate demand curve, and a Phillips curve... (a) Suppose that the growth rate of the money supply is 12% per year... ANSWER: We must show that if (g mt, u T, g y,t, π T ) = (12, 5, 2, 10) for T = t 1 and T = t, then it s also true for all T > t. First, substitute u t = 5 in equation 1 to obtain u t+1 5 = 0.5(g yt+1 2). Then plug in the right hand of this last equation into equation 3 to obtain π t+1 π e t+1 = 2( 0.5(g yt+1 2)) = g yt+1 2. Now plug in equation 2 to obtain π t+1 π e t+1 = g mt+1 π t+1 2 or π t+1 = (g mt+1 + π e t+1 2)/2. Finally, working backwards from the facts that g mt+1 = 12 and that π e t+1 = π t = 10 we get π t+1 = ( )/2 = 10, g yt+1 = = 2 and u t+1 = 5 0.5(2 2) = 5. Therefore this set of values is a steady state for the economy. (b) Suppose instead that g mt = 6 for all t. Show that the steadystate values of u t, g yt, and π t are 5, 2, and 4, respectively. ANSWER: Setting π e t+1 = π t = 4 and g mt+1 = 6 in the equations derived above we get π t+1 = ( )/2 = 4, g yt+1 = 6 4 = 2 and u t+1 = 5 0.5(2 2) = 5. 4
5 (c) Now suppose that the economy begins (in year 0) in the steady state discussed in part (a) and that the monetary authority (the Fed) wants to move the economy from this steady state to the steady state in part (b)... ANSWER: Solve the above equations for general values: Substitute u t from (1) into (3) and solve for π to obtain π t = π e t + 8 2u t 1 + g yt. Now substitute g yt from 2 to get π t = (π e t + 8 2u t 1 + g mt )/2 which gives us inflation as a result of exogenous variables. Solve for g mt = 2π t π e t 8 + 2u t 1. Then, substitute into (3) again to obtain unemployment: u t = 3 + (u t 1 )/2 + (π e t g mt )/4. Date(t) πt e desired π g mt u t NOTE: This exercise is more difficult than it looks. Make sure you solve the system of equations in general so that you are taking into account the changes to u t as you go along. (d) Calculate the sacrifice ratio associated with the transition path that you calculated in part (d). (Be sure to read Box 12.4 on p. 461 in Chapter 12 of the textbook.)... ANSWER: The sacrifice ratio is (3 years*1 percentage point of unemployment)/(6 percentage points fall in inflation)=1/2. (e) Suppose that inflation expectations are rational rather than adaptive. That is, rather than set π e t = π t 1, assume instead that π e t jumps immediately to its value in the new steady state... ANSWER: The following table presents the result of the rational expectations assumption above, where we have assumed the monetary authority also sets money at the steady state value immediately. 5
6 Date(t) πt e desired π g mt u t Clearly the sacrifice ratio is 0 in this case. NOTE: This exercise should not be interpreted as gullible expectations, with π e = 4 no matter what, which will lead to a negative sacrifice ratio if the government sticks to its slow disinflation plan. Instead, the idea is that if agents expect the government to set π at 4, the government could do it in one single and painless step. 6
Solutions to Spring 2015 Week 13 Tutorial Questions (Ch9)
Chapter 9: Q1: Macroeconomics P.324 Review Questions #6 Q2: Macroeconomics P.324 Review Questions #7 Q3: Macroeconomics P.324 Review Questions #8 Q4: Macroeconomics P.325 Numerical Problems #1 Q5: Macroeconomics
More informationAgenda. Inflation and the DAD SAS Model: A General Framework for Macroeconomic Analysis, Part 4. Inflation and the triangle model
Agenda Inflation and the Triangle Model. Inflation and the DAD SAS Model: A General Framework for Macroeconomic Analysis, Part 4 The DAD SAS Model. Inflation Adjustment and the Attainment of General Equilibrium.
More informationAgenda. The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis, Part 2. The AD Curve. Aggregate Demand and Aggregate Supply
Agenda Aggregate Demand and Aggregate Supply The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis, art 2 131 132 Aggregate Demand and Aggregate Supply The ADAS model is derived from
More informationIntroduction to The ISLM Model
Chapter 9 The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis Economics 282 University of Alberta Introduction to The ISLM Model This name originates from its basic equilibrium conditions:
More information2. a. The IS curve is found from the equation Y = Cd + P + G = (Y  100)  500r r+ 100, or 0.5Y = r, or Y = r.
Chapter 11 Numerical Problems 1. The following table shows the real wage (w), the effort level (E), and the effort per unit of real wages (E / w). w E E/w 8 7 0.875 10 10 1.00 12 15 1.25 14 17 1.21 16
More informationChapter 12: Aggregate Supply and Phillips Curve
Chapter 12: Aggregate Supply and Phillips Curve In this chapter we explain the position and slope of the short run aggregate supply (SRAS) curve. SRAS curve can also be relabeled as Phillips curve. A basic
More informationProblem Set #4: Aggregate Supply and Aggregate Demand Econ 100B: Intermediate Macroeconomics
roblem Set #4: Aggregate Supply and Aggregate Demand Econ 100B: Intermediate Macroeconomics 1) Explain the differences between demandpull inflation and costpush inflation. Demandpull inflation results
More informationSuggested Solutions to Assignment 7 (Optional)
EC290 Intermediate Macro I Instructor: Sharif F. Khan Department of Economics Wilfrid Laurier University Winter 2011 Suggested Solutions to Assignment 7 (Optional) (This assignment is based on the materials
More informationLecture 10: Aggregate Demand and Aggregate Supply I
EC201 Intermediate Macroeconomics EC201 Intermediate Macroeconomics Lecture 10: Aggregate Demand and Aggregate Supply I Lecture Outline:  how to derive the aggregate demand from the ISLM model;  a preliminary
More informationSo we can use either equilibrium condition to get the same result.
Numerical Problems 1. (a) S d = Y C d G = Y (4000 4000r + 0.2Y) 2000 = 6000 + 4000r + 0.8Y. (b) (1) Using the equation that goods supplied equals goods demanded gives Y = C d + I d + G = (4000 4000r +
More informationProblem Set 7 FE312 Fall 2014 Rahman. Some Answers
Some Answers 1) a. During the Depression, the Federal Reserve enacted policies that reduced the money supply. Sketch a graph and on it indicate what this would do to the aggregate demand and aggregate
More informationEcon 102 Homework #9 AD/AS and The Phillips Curve
Econ 102 Homework #9 D/S and The Phillips Curve 1. s on previous homework assignments, turn in a news article together with your summary and explanation of why it is relevant to this week s topic, D/S
More informationBADM 527, Fall 2013. Midterm Exam 2. Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME
BADM 527, Fall 2013 Name: Midterm Exam 2 November 7, 2013 Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME 1. According to classical theory, national income (Real
More informationFoundations of Economics for International Business Supplementary Exercises 7
Foundations of Economics for International Business Supplementary Exercises 7 INSTRUCTOR: XIN TANG Department of World Economics Economics and Management School Wuhan University Fall 2015 1 MULTIPLE CHOICES
More informationAgenda. The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis, Part 3. Disequilibrium in the ADAS model
Agenda The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis, art 3 rice Adjustment and the Attainment of General Equilibrium 131 132 General equilibrium in the ADAS model Disequilibrium
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 35 questions, each 1.
AUBG ECO 302 A F I N A L E X A M Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 35 questions, each 1.5 points 1) The Bigdrill company drills
More informationAggregate Demand I: Building the ISLM Model
CHAPTER 11 : Building the ISLM Model Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: the IS curve and its relation to: the Keynesian cross
More informationChapter 9. The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis. 2008 Pearson AddisonWesley. All rights reserved
Chapter 9 The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis Chapter Outline The FE Line: Equilibrium in the Labor Market The IS Curve: Equilibrium in the Goods Market The LM Curve:
More informationHomework 4 I Multiple Choices
Homework 4 I Multiple Choices 1) Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining A) the hyperinflations of the 1920s. B) why the Great
More informationEcon 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #3
Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #3 1. When firms experience unplanned inventory accumulation, they typically: A) build new plants. B) lay off workers and reduce
More informationMacroeconomic Analysis Econ 6022 Level I
1 / 66 Macroeconomic Analysis Econ 6022 Level I Lecture 8 Fall, 2011 2 / 66 Business Cycle Analysis: A Preview What explains business cycle fluctuations? Two major business cycle theories  Classical theory
More informationMods Practice
Mods 171819 Practice Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The aggregate demand curve shows the relationship between the aggregate price level
More informationUse the following to answer question 9: Exhibit: Keynesian Cross
1. Leading economic indicators are: A) the most popular economic statistics. B) data that are used to construct the consumer price index and the unemployment rate. C) variables that tend to fluctuate in
More informationCHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY
CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How
More informationQuestion 1: Deriving and Solving the ISLM Model (closed economy)
ECON 222 Macroeconomic Theory I Fall Term 2010 Assignment 4 Due: Drop Box 2nd Floor Dunning Hall by noon November 26th 2010 No late submissions will be accepted No group submissions will be accepted No
More informationFigure 1: ISLM Intersection
ISLM Intersection In the short run, the economy moves to the intersection of the IS and LM curves (figure 1). Production adjusts to demand to put the economy on the IS curve. Bond prices and the interest
More informationb. Given this information, describe the government budget balance for this economy.
Economics 102 Summer 2015 Answers to Homework #5 Due Wednesday, July 15, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).
More informationAgenda. Business Cycles. What Is a Business Cycle? What Is a Business Cycle? What is a Business Cycle? Business Cycle Facts.
Agenda What is a Business Cycle? Business Cycles.. 111 112 Business cycles are the shortrun fluctuations in aggregate economic activity around its longrun growth path. Y Time 113 114 1 Components
More informationMONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*
Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* The Demand for Topic: Influences on Holding 1) The quantity of money that people choose to hold depends on which of the following? I. The price
More informationA country s economy is in a shortrun equilibrium with an output level less than the fullemployment output level. Assume an upwardsloping aggregate
ADAS Practice A country s economy is in a shortrun equilibrium with an output level less than the fullemployment output level. Assume an upwardsloping aggregate supply curve. (a) Using a correctly labeled
More informationChapter 12 Unemployment and Inflation
Chapter 12 Unemployment and Inflation Multiple Choice Questions 1. The origin of the idea of a tradeoff between inflation and unemployment was a 1958 article by (a) A.W. Phillips. (b) Edmund Phelps. (c)
More information2009 CHAPTER 11 Self Study Questions
CHAPTER 11 Self Study Questions 1) The aggregate supply/aggregate demand model is used to help understand all of the following except A) inflation. B) business cycle fluctuations. C) the aggregate value
More informationCosumnes River College Principles of Macroeconomics Problem Set 9 Due November 10, 2015
Name: Solutions Cosumnes River College Principles of Macroeconomics Problem Set 9 Due November 10, 2015 Fall 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in the
More informationAnswers to Textbook Problems
88 Krugman/Obstfeld International conomics: Theory and Policy, Seventh dition nswers to Textbook Problems. decline in investment demand decreases the level of aggregate demand for any level of the exchange
More informationAggregate Demand and Aggregate Supply Analysis
Aggregate Demand and Aggregate Supply Analysis This lecture develops an aggregate demand and aggregate supply model to study the effects of monetary policy on output and inflation. Aggregate Supply A.
More information150 points. Please write answers in ink. Allocate your time efficiently. Good luck.
Eco 202 Name Final Exam Key 10 May 2004 150 points. Please write answers in ink. Allocate your time efficiently. Good luck. 1. Suppose that Congress passes an investment tax credit, which subsidizes domestic
More information3 Macroeconomics SAMPLE QUESTIONS
Sample MultipleChoice Questions Circle the letter of each correct answer. 1. Which of the following best describes aggregate supply? (A) The amount buyers plan to spend on output (B) A schedule showing
More informationECN 106 Macroeconomics 1. Lecture 6
ECN 106 Macroeconomics 1 Lecture 6 Giulio Fella c Giulio Fella, 12 ECN 106 Macroeconomics 1  Lecture 6 140/311 Roadmap for this lecture Policy implications of the longrun model Macroeconomic stylized
More informationUniversity of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi
University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 26 AD & AS Use the figure below to answer the following questions. Figure 26.1.1
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 3312 Macroeconomics Practice Exam 3 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Assuming the economy is starting at the natural rate
More informationCh.6 Aggregate Supply, Wages, Prices, and Unemployment
1 Econ 302 Intermediate Macroeconomics ChulWoo Kwon Ch.6 Aggregate Supply, Wages, rices, and Unemployment I. Introduction A. The dynamic changes of and the price adjustment B. Link between the price change
More informationEcon 202 Final Exam. Douglas, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam.
, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam 1. When the government spends more, the initial effect is that a. aggregate
More informationA decline in the stock market, which makes consumers poorer, would cause the aggregate demand curve to shift to the left.
Economics 304 Final Exam Fall 2000 PART I: TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. (1.5 pts. each) A decline in the stock market, which makes consumers poorer,
More informationSuggested Answers for Mankiw Questions for Review & Problems
Suggested Answers for Mankiw & Problems The answers here will not have graphs, I encourage to refer to the text for graphs. There is a some math, however I don t expect you to replicate these in your exam,
More informationAggregate Supply and Aggregate Demand
Aggregate Supply and Aggregate Demand Econ 120: Global Macroeconomics 1 1.1 Goals Goals Specific Goals Be able to explain GDP fluctuations when the price level is also flexible. Explain how real GDP and
More informationECON 1010 Principles of Macroeconomics Solutions to Exam #3. Section A: Multiple Choice Questions. (40 points; 2 pts each)
ECON 1010 Principles of Macroeconomics Solutions to Exam #3 Section A: Multiple Choice Questions. (40 points; 2 pts each) 1. Domestic savings and foreign savings are: a. sources of funds for investment
More informationPracticed Questions. Chapter 20
Practiced Questions Chapter 20 1. The model of aggregate demand and aggregate supply a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution
More informationChapter 22. Aggregate Demand and Supply Analysis Aggregate Demand
Chapter 22 Aggregate Demand and Supply Analysis 22.1 Aggregate Demand 1) The aggregate demand curve is the total quantity of an economyʹs A) intermediate goods demanded at all price levels. B) intermediate
More informationPrinciples of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004
Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.
More informationChapter 13. Aggregate Demand and Aggregate Supply Analysis
Chapter 13. Aggregate Demand and Aggregate Supply Analysis Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics In the short run, real GDP and
More informationAnalytical Problems: Chapter 9
Analytical Problems: Chapter 9 1. (a) The increase in desired investment shifts the IS curve up and to the right, as shown in Figure 9.21. The price level rises, shifting the LM curve up and to the left
More informationMacroeconomics, 6e (Abel et al.) Chapter 12 Unemployment and Inflation Unemployment and Inflation: Is There a Tradeoff?
Macroeconomics, 6e (Abel et al.) Chapter 12 Unemployment and Inflation 12.1 Unemployment and Inflation: Is There a Tradeoff? 2) Phillipsʹs research looked at British data on A) unemployment and inflation.
More information7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Aggregate Supply
Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Aggregate Supply Topic: Aggregate Supply/Aggregate Demand Model 1) The aggregate supply/aggregate demand model is used to help understand all of the following
More informationChapter 22. Aggregate Demand and Supply Analysis
Chapter 22 Aggregate Demand and Supply Analysis Aggregate Demand The relationship between the quantity of aggregate output demanded and the price level when all other variables are held constant Based
More informationAGGREGATE SUPPLY AGGREGATE DEMAND 125
AGGREGATE SUPPLY AGGREGATE DEMAND 125 (E) point A to point B. aggregate demand would be a movement from equilibrium position A to equilibrium position B. 13. In the graph above, contractionary monetary
More informationEC2105, Professor Laury EXAM 2, FORM A (3/13/02)
EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each
More informationAssignment #3. ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma. Notice:
ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma Assignment #3 Notice: (1) There are 25 multiplechoice problems and 2 analytic (shortanswer) problems. This assignment is due on March
More informationEcon 100B: Macroeconomic Analysis Fall Problem Set #3 ANSWERS (Due September 1516, 2008)
Econ 100B: Macroeconomic Analysis Fall 2008 Problem Set #3 ANSWERS (Due September 1516, 2008) A. On one side of a single sheet of paper: 1. Clearly and accurately draw and label a diagram of the Production
More information1. Neutrality of money in classical model: brief characteristic, implication for economic policy
Economic policy, examination questions, school year 20102011 A. Questions, where brief, compact answer is required 1. Neutrality of money in classical model: brief characteristic, implication for economic
More informationMacroeconomics Instructor Miller AD/AS Model Practice Problems
Macroeconomics Instructor Miller AD/AS Model Practice Problems 1. The basic aggregate demand and aggregate supply curve model helps explain A) fluctuations in real GDP and the price level. B) longterm
More informationMacroeconomics CHAPTER 10. Aggregate Supply and Aggregate Demand. Aggregate Supply. The ShortRun Aggregate Supply Curve
Aggregate Supply Macroeconomics CHAPTER 10 The aggregate supply curve shows the relationship aggregate output. Aggregate Supply and Aggregate Demand 3 What you will learn in this chapter: How the aggregate
More information7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts
Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),
More information1. Simple Classical and Keynesian Models
1. Simple Classical and Keynesian Models Tutorial 1 Consider a closed economy characterised by the following equations: y d = c + i + g, c = a + b(y t), a > 0,0 < b < 1 i = i 0 hr, i 0, h > 0 y d = y,
More informationb) What happens to the level of output and the price level in the short run and in the long run?
1) Suppose the Fed reduces the money supply by 5 percent. a) What happens to the aggregate demand curve? If the Fed reduces the money supply, the aggregate demand curve shifts down. This result is based
More informationChapter 11 Keynesianism: The Macroeconomics of Wage and Price Rigidity
Chapter 11 Keynesianism: The Macroeconomics of Wage and Price Rigidity Multiple Choice Questions 1. Keynesians are skeptical of the classical theory that recessions are periods of increased mismatch between
More informationAgenda. Unemployment and Inflation, Part 1. Unemployment and Inflation. Unemployment and Inflation. Unemployment and Inflation:
Agenda Unemployment and Inflation, Part 1 : Is There a TradeOff? 151 152 Is there a tradeoff between inflation and unemployment? In 1958, A.W. Phillips found a negative relationship between unemployment
More informationInflation and Unemployment CHAPTER 22 THE SHORTRUN TRADEOFF 0
22 The ShortRun Tradeoff Between Inflation and Unemployment CHAPTER 22 THE SHORTRUN TRADEOFF 0 In this chapter, look for the answers to these questions: How are inflation and unemployment related in
More informationChapter 9 The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis
Chapter 9 The ISLM/ADAS Model: A General Framework for Macroeconomic Analysis Multiple Choice Questions 1. The FE line shows the level of output at which the market is in equilibrium. (a) Goods (b) Asset
More informationQuestions for Review. CHAPTER 9 Introduction to Economic Fluctuations
HTER 9 Introduction to Economic Fluctuations Questions for Review 1. When GD declines during a recession, growth in real consumption and investment spending both decline; unemployment rises sharply. 2.
More informationAnswers to Text Questions and Problems in Chapter 11
Answers to Text Questions and Problems in Chapter 11 Answers to Review Questions 1. The aggregate demand curve relates aggregate demand (equal to shortrun equilibrium output) to inflation. As inflation
More informationECON 3312 Macroeconomics Exam 3 Fall 2014. Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 3312 Macroeconomics Exam 3 Fall 2014 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Everything else held constant, an increase in net
More informationCH 10  REVIEW QUESTIONS
CH 10  REVIEW QUESTIONS 1. The shortrun aggregate supply curve is horizontal at: A) a level of output determined by aggregate demand. B) the natural level of output. C) the level of output at which the
More information4 Macroeconomics LESSON 6
4 Macroeconomics LESSON 6 Interest Rates and Monetary Policy in the Short Run and the Long Run Introduction and Description This lesson explores the relationship between the nominal interest rate and the
More informationName: Final Exam Econ 219 Spring You can skip one multiple choice question. Indicate clearly which one
Name: Final Exam Econ 219 Spring 2005 This is a closed book exam. You are required to abide all the rules of the Student Conduct Code of the University of Connecticut. You can skip one multiple choice
More informationECON 1010 Principles of Macroeconomics Final Exam
ECON 1010 Principles of Macroeconomics Final Exam 1. Expansionary monetary policy: Section A: Multiple Choice Questions. (120 points; 3 pts each) a. increases the money supply, interest rates, consumption,
More informationRutgers University School of Business Aggregate Economics Fall 2010
Rutgers University School of Business Aggregate Economics Fall 2010 Professor: Dr. Davood Taree Email: dtaree@rbs.rutgers.edu Office hours: Thursday: By appointment Course Information: Course Number: 591:41
More informationNotes 10: An Equation Based Model of the Macroeconomy
Notes 10: An Equation Based Model of the Macroeconomy In this note, I am going to provide a simple mathematical framework for 8 of the 9 major curves in our class (excluding only the labor supply curve).
More informationInflation, Unemployment, and Federal Reserve Policy
Chapter 16 (28) Inflation, Unemployment, and Federal Reserve Policy Chapter Summary Inflation and unemployment are two very important macroeconomic issues. The Phillips curve illustrates the shortrun
More informationMacro Chapter 10 study guide questions
Macro Chapter 10 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Which of the following will reduce aggregate demand? a. an increase
More informationUsing an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on :
Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on : The money supply Interest rates Nominal Interest rates i1 i2 Sm1
More informationPreTest Chapter 15 ed17
PreTest Chapter 15 ed17 Multiple Choice Questions 1. The extended ADAS model: A. distinguishes between shortrun and longrun aggregate demand. B. explains inflation but not recession. C. includes G
More informationChapter 13: Aggregate Demand and Aggregate Supply Analysis
Chapter 13: Aggregate Demand and Aggregate Supply Analysis Yulei Luo SEF of HKU March 25, 2013 Learning Objectives 1. Identify the determinants of aggregate demand and distinguish between a movement along
More informationSummer 2014 Week 13 Tutorial Questions Solutions (Ch9)
Chapter 9: Q1: Macroeconomics P.324 Numerical Problems #1 Q2: Macroeconomics P.325 Numerical Problems #4 Chapter 10: Q3: Macroeconomics P.391 Review Questions #1 Q4: Macroeconomics P.391 Review Questions
More informationChange Effect on nominal money demand Effect on real money demand Decrease in aggregate price level Shift nominal money demand to left Has no effect
AP Macroeconomics Unit 4 Review Session Money Market 1. Draw the money market, indicating the equilibrium interest rate and quantity. 2. Use the following table to answer this question. Change Effect on
More informationMacroeconomics Instructor Miller Aggregate Expenditure Practice Problems
Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems 1. The aggregate expenditure model focuses on the relationship between real spending and. A) shortrun; real GDP B) shortrun; inflation
More informationTHE SHORTRUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT
21 THE SHORTRUN TRDEOFF ETWEEN INFLTION ND UNEMPLOYMENT LERNING OJECTIVES: y the end of this chapter, students should understand: why policymakers face a shortrun tradeoff between inflation and unemployment.
More informationSummary of ISLM and ASAD. Karl Whelan September 19, 2014
Summary of ISLM and ASAD Karl Whelan September 19, 2014 The Goods Market This is in equilibrium when the demand for goods equals the supply of goods. Higher real interest rates mean there is less demand
More information1. a. Interestbearing checking accounts make holding money more attractive. This increases the demand for money.
Macroeconomics ECON 2204 Prof. Murphy Problem Set 4 Answers Chapter 10 #1, 2, and 3 (on pages 308309) 1. a. Interestbearing checking accounts make holding money more attractive. This increases the demand
More informationMONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*
Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Key Concepts The Demand for Money Four factors influence the demand for money: The price level An increase in the price level increases the nominal
More informationPractice Final Exam Economics 503 Fundamentals of Economic Analysis 2:305:30PM
Name Student ID Practice Final Exam Economics 503 Fundamentals of Economic Analysis 2:305:30PM Write all of your answers on this white exam paper. Do not hand in the blue books. Multiple Choices (2 points
More information13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Fixed Prices and Expenditure Plans. D) the aggregate price level is fixed and that aggregate
Chapter 13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Fixed Prices and Expenditure Plans Topic: Keynesian Model * 1) In the Keynesian model of aggregate expenditure, real GDP is determined by the A)
More informationName: Date: 2. The ISLM model takes as exogenous. A) the price level and national income B) the price level C) national income D) the interest rate
Name: Date: 1. John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on: A) low levels of capital. B) an untrained labor force. C) inadequate
More informationKeynes and ISLM analysis. (Chapter 33 in Mankiw and Taylor)
Keynes and ISLM analysis (Chapter 33 in Mankiw and Taylor) Shortrun fluctuations The next four lectures will cover different aspects of macroeconomic policy, in particular, the role of fiscal and monetary
More informationVII. ECONOMIC FLUCTUATIONS AND MACROECONOMIC POLICY
VII. ECONOMIC FLUCTUATIONS AND MACROECONOMIC POLICY A. Aggregate Demand and Prices 1. The aggregate demand/inflation (ADI) curve  graphical representation of the negative relationship (downward sloping
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from
More informationMACROECONOMICS '4KTH EDITOG
MACROECONOMICS '4KTH EDITOG Andrew B.Abel The Wharton School of the University of Pennsylvania Ben S. Bemanke Dean Croushore Robins School of Business University of Richmond PEARSON Addison Wesley Boston
More informationLecture 12: Aggregate Demand and Supply Analysis
Lecture 12: Aggregate Demand and Supply Analysis Aggregate Demand Aggregate demand is made up of four component parts: consumption expenditure, the total demand for consumer goods and services planned
More informationECON 5110 Class Notes Overview of New Keynesian Economics
ECON 5110 Class Notes Overview of New Keynesian Economics 1 Introduction The primary distinction between Keynesian and classical macroeconomics is the flexibility of prices and wages. In classical models
More informationIn this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks.
Chapter 11: Applying ISLM Model In this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks. We also learn how the ISLM model
More information