MGEB06H3 Chapter Notes -Monetary Policy, Equilibrium Point, Money Supply

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mauveserval732

17 Oct 2013

School

UTSC

Department

Economics for Management Studies

Course

MGEB06H3

Professor

Jack Parkinson

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Document Summary

Question 1: when people realize that they must save a larger portion of their income for retirement, saving . Is curve shifts down and to the left to is(c1). Introduction of new technology leads to a reduction in the demand for money: Lm curve shifts down and to the right to lm( (md/p)1): since the magnitudes of shifts of both is and lm curves are unknown, points b, c, and d are potential short-run equilibrium: If is shifts more than lm, point b is the equilibrium: y . If is shifts less than lm, point c is the equilibrium: y . If shift in is = shift in lm, point d is the equilibrium: no change in y, r . , r : conclusion: r falls but the overall effect on y is ambiguous. r. 1 (cid:222) (cid:222) (cid:247) (cid:247) (cid:246) (cid:231) (cid:231) (cid:230) (cid:247) (cid:247) (cid:246) (cid:231) (cid:231) (cid:230) (cid:222) (cid:222) (cid:222)

Related Questions

1. Assume that the equilibrium in the money market may be described as M/P = 0.5Y - 100r, and M/P equals 800.

a. Write the LM curve two ways, expressing Y as a function of r and r as a function of Y. (Hint: Write the LM curve only relating Y and r; substitute out M/P.)

b. What is the slope of the LM curve?

c. If r is 1 percent, what is Y along the LM curve? If r is 3 percent, what is Y along the LM curve? If r is 5 percent, what is Y along the LM curve?

d. If M/P increases, does the LM curve shift upward and to the left or downward and to the right?

e. If P increases and M is constant, does the LM curve shift upward and to the left or downward and to the right?

silverarmadillo44

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?

Consider an economy described by the following equations: C = 200 + 0.75(Y-T) where I = 200 - 25r, G = 100, T = 100, L(r, Y) = Y - 100r M = 1000 P = 2

(a) Derive the equation for the IS curve

(b) Derive the equation for the LM curve.

(d) What is the government purchases multiplier?

(e) What is the tax multiplier?

(f) Suppose that government purchases are raised from 100 to 150. How does the IS curve shift? What are the new equilibrium interest rate and level of output?

(g) Suppose instead that the money supply is raised from 1,000 to 1,200. How does the LM curve shift? What are the new equilibrium interest rate and level of output?

(h) With the initial values for monetary and fiscal policy, suppose that the price level rises from 2 to 4. What happens? What are the new equilibrium interest rate and level of output?

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MGEB06H3 Chapter Notes -Monetary Policy, Equilibrium Point, Money Supply

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