ECON 101 Lecture Notes - Lecture 2: Fiscal Policy, Liquidity Preference, Liquidity Trap

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peachporcupine609

25 Sep 2016

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In everywhere along the is curve, the demand for commodities equals the supply. Y is the main product market adjusting variable. Note : i is the main money market adjusting variable. The money market will typically adjust more quickly than the product market. If ms , for a given y, there is a given mt, and so ma must , so that md to equate with the in ms , If md , for a given y, i must , so that ma to offset the originating. If the minimum i, where the liquidity trap occurs, is expected to , Ma , and hence md . For a given ms, to restore equilibrium, i must . For a given y, if i , lm . To restore the money market equilibrium, the total md must be unchanged, and equal to the unchanged ms. Bearishness : pessimism i i . Bonds demand i i .

Related Questions

11. Statement 1: The multiplier for autonomous consumption, I and G are different given a specific value of MPC.

Statement 2: The lumpsum tax multiplier is always the G multiplier times the MPC.

a)Statement 1 is true, Statement 2 is true.

b)Statement 1 is true, Statement 2 is false.

c)Statement 1 is false, Statement 2 is true.

d)Statement 1 is false, Statement 2 is false.

12. Pick the correct statement

a)Every point on the IS curve corresponds to an equilibrium value of Y, for a given value of r.

b)Every point on the IS curve corresponds to an equilibrium in the commodity market.

c)Both (a) and (b)

d)None of the above

13. Increase in real money supply

a)Shifts the IS curve to the right

b)Shifts the LM curve to the right

c)Both (a) and (b)

d)None of the above

14. Together the IS-LM model shows an equilibrium. This equilibrium denotes

a)An equilibrium in the commodity market

b)An equilibrium in the money market

c)An equilibrium in the market for loanable funds

d)All of the above

15. Suppose that an expansionary fiscal policy has been enacted. To keep interest rates unchanged, what must the central bank do?

a)Nothing

b)Lower real money supply

c)Raise real money supply

d)None of the above

C = 1275 + 0.5(Y-T) â 200r

I = 900 â 200r

Real Money demand, L = 0.5Y â 200i

Expected inflation, ? = 0

Full employment output, = 4600

a.) Suppose that T = G = 450 and M = 9000

Find an equation describing the IS curve

Find an equation describing the LM curve

Find an equation for the aggregate demand curve (Hint: Use IS and LM equations to find a relationship between Y and P)

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

b) Suppose M = 4500, T and G remain the same.

What is the equation for the aggregate demand curve?

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

c.) Suppose T = G = 330 and M = 9000

What is the equation for the aggregate demand curve?

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

orchidsardine515

Consider the Following Economy:

Y = (C + I + G + NX) <-Income Identity

C = 300*0.8YD<-Consumption

I = 200-1500r <-investment

NX = 100-0.04Y-500r <-net exports

M^d = (0.5Y-2000r) <-Money Demand

G = 1200

t (tax rate) = 0.2

Money Supply (M^s) = $550

P = $1

a. What is the IS Curve?

b. What is the LM Curve?

c. What are the values of Y (income) and interest rate (r) when the IS-LM model is in equilibrium?

ECON 101 Lecture Notes - Lecture 2: Fiscal Policy, Liquidity Preference, Liquidity Trap

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