Answers to Problem Set 4. Homework 4 Economics 301
|
|
- Morris Webster
- 6 years ago
- Views:
Transcription
1 Answers to Problem Set 4 Homework 4 Economics 301 Dividend Problem: For the questions below, assume that the asset in question is a bond with a two year maturity which will pay $100 at the end of the first year and $100 at the end of the second year. 1) Assume that the current interest rate is 5.25% and that it is expected to rise to 5.5% next year. Additionally assume that agents do not care about risk. What is the price today of this two-year bond? $ 100 $100 P = + = $ (1.0525)(1.055) 2) Calculate the yield to maturity and graph the yield curve. Is the slope positive or negative? Explain why. The yield to maturity is approximately the average of the two interest rates and equals 5.375%. The yield curve therefore shows a one-year bond paying 5.25% and a twoyear bond paying 5.375%. It is upward sloping because interest rates are expected to rise. yield time 3) Calculate the price of the bond if the Fed raises the current interest rate to 5.5% and the rate is expected to remain there for the coming year. Does the increase in the interest rate increase of decrease the price of the bond? $ 100 $100 P = (1.055)(1.055) = $ The increase in the interest rate reduces the price of the bond.
2 4) Return to the assumptions in 1) about interest rates over time, but now assume that agents do care about risk. In fact they want a risk premium of 1%. Recalculate the price of the bond and explain how risk affects it. Think of the asset as the combination of a one period bond with a face value of 100 and a two year bond with a face value of 100. There is no risk on the one year bond so its discount factor does not change. For the two year bond, the risk premium will raise the discount factor in the first period by 1% from 5.25% to 6.25%. The price of the bond becomes $100 $100 P = + = $ Therefore, the aversion to risk reduces the price of (1.0625)(1.055) the bond. Recall that after one year has passed, the two-year bond has become a oneyear bond and will not command a risk premium over other one year bonds. 5) Calculate the yield to maturity under the new assumption about risk and graph the yield curve. How does the slope compare to the slope of your original yield curve? The yield to maturity is the average of the first-period interest rate with the risk premium, 6.25% and the second period interest rate of 5.5%, yielding 5.875% for the two-year bond. The yield curve is steeper. yield time
3 Analytical Problems: Chapter 9 1. (a) The increase in desired investment shifts the IS curve up and to the right, as shown in Figure The price level rises, shifting the LM curve up and to the left to restore equilibrium. Since the real interest rate rises, consumption declines. In summary, there is no change in the real wage, employment, or output; there is a rise in the real interest rate, the price level, and investment; and there is a decline in consumption. Figure 9.21
4 (b) The rise in expected inflation shifts the LM curve down and to the right, as shown in Figure The price level rises, shifting the LM curve up and to the left to restore equilibrium. Since the real interest rate is unchanged, consumption and investment are unchanged. In summary, there is no change in the real wage, employment, output, the real interest rate, consumption, or investment; and there is a rise in the price level. Figure 9.22 (c) The increase in labor supply is shown as a shift in the labor supply curve in Figure 9.23 (a). This leads to a decline in the real wage rate and an increase in employment. The rise in employment causes an increase in output, shifting the FE line to the right in Figure 9.23 (b). To restore equilibrium, the price level must decline, shifting the LM curve down and to the right. Since output increases and the real interest rate declines, consumption and investment increase. In summary, the real wage, the real interest rate, and the price level decline; and employment, output, consumption, and investment rise. Figure 9.23 (d) The reduction in the demand for money gives results identical to those in part (b).
5 2. The increase in the price of oil reduces the marginal product of labor, causing the labor demand curve to shift to the left from ND 1 to ND 2 in Figure Since households expected future incomes decline, labor supply increases, shifting the labor supply curve from NS 1 to NS 2 (but by assumption, the shift to the left in labor demand is larger than the shift to the right in labor supply). At equilibrium, there is a reduced real wage and lower employment. The productivity shock results in a shift to the left of the full-employment line from FE 1 to FE 2 in Figure 9.25, as both employment and productivity decline. Because the shock is permanent, it reduces future output and reduces the future marginal product of capital, both of which result in a downward shift of the IS curve. The new equilibrium is located at the intersection of the new IS curve and the new FE line. If, as shown in the figure, this intersection lies above and to the left of the original LM curve, the price level will increase and shift the LM curve upward (from LM 1 to LM 2 ) to pass through the new equilibrium point. The result is an increase in the price level, but an ambiguous effect on the real interest rate. Since output is lower, consumption is lower. Since the effect on the real interest rate is ambiguous, the effect on saving and investment are ambiguous as well, though the fall in the future marginal product of capital would tend to reduce investment. Figure 9.24 Figure 9.25
6 The result is different from that of a temporary supply shock; when the shock is temporary there is no impact on future output or the marginal product of capital, so the IS curve does not shift. In that case the price level increases to shift the LM curve up and to the left from LM 1 to LM 2 in Figure 9.26 to restore equilibrium. In that case, the real interest rate unambiguously increases. Under a permanent shock, the IS curve shifts down and to the left, so the rise in the real interest rate is less than in the case of a temporary shock, and the real interest rate can even decline. Figure (a) The decrease in expected inflation increases real money demand, shifting the LM curve up, as shown in Figure The real interest rate rises and output declines. Figure 9.27
7 (b) The increase in desired consumption shifts the IS curve up and to the right, as shown in Figure This causes the real interest rate and output to rise. Figure 9.28 (c) The increase in government purchases shifts the IS curve up and to the right, with the same result as in part (b). (d) If Ricardian equivalence holds, the increase in taxes has no effect on either the IS or LM curves, so there is no change in either the real interest rate or output. If Ricardian equivalence doesn t hold, so that the increase in taxes reduces consumption spending, the IS curve shifts down and to the left, as shown in Figure Both the real interest rate and output decline. Figure 9.29 (e) An increase in the expected future marginal productivity of capital shifts the IS curve up and to the right, with the same result as in part (b).
Test 2 Economics 322 Chappell March 22, 2007
Test 2 Economics 322 Chappell March 22, 2007 Name Last 4 Digits This test has two parts. There are 20 multiple choice questions at 3 points each (60 points total). There are three analytical questions,
More informationSuggested Answers Problem Set # 5 Economics 501 Daniel
1. Use graphs of IS-LM-FE and AS-AD models to explain why RBC models with productivity shocks and money-supply shocks fail to explain the pro-cyclicality of money growth and inflation. Inflation falls
More information6. The Aggregate Demand and Supply Model
6. The Aggregate Demand and Supply Model 1 Aggregate Demand and Supply Curves The Aggregate Demand Curve It shows the relationship between the inflation rate and the level of aggregate output when the
More informationChapter 9 Chapter 10
Assignment 4 Last Name First Name Chapter 9 Chapter 10 1 a b c d 1 a b c d 2 a b c d 2 a b c d 3 a b c d 3 a b c d 4 a b c d 4 a b c d 5 a b c d 5 a b c d 6 a b c d 6 a b c d 7 a b c d 7 a b c d 8 a b
More information1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the
1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the money supply constant. Figure 1 (B) shows what the model looks like if the Fed adjusts the money supply to hold
More informationECON2123 TUT: AS-AD NOTE
ECON2123 TUT: AS-AD NOTE This note is preliminary, and subject to further revision. ding.dong@connect.ust.hk 1 AS-AD: Introduction 1.1 Supply and Demand In every commodity good market, there will be supply
More informationSuggested Solutions to Problem Set 5
Econ 154b Spring 2005 Question 1 Suggested Solutions to Problem Set 5 For the period analyzed, of all quarterly changes in the civilian unemployment rate by at least 0.2 percentage points, about 80 were
More informationECON2123 Tutorial 3: Financial Market, IS-LM Model
ECON2123 Tutorial 3: Financial Market, IS-LM Model Department of Economics HKUST September 27, 2018 ECON2123 Tutorial 3: Financial Market, IS-LM Model 1 / 14 Money Demand A comparison b/w two assets: Money
More informationProblem Set #3 ANSWERS. Due Tuesday, March 18, 2008
Name: SID: Discussion Section: Problem Set #3 ANSWERS Due Tuesday, March 18, 2008 Problem Sets MUST be word-processed except for graphs and equations. When drawing diagrams, the following rules apply:
More informationProfessor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 5
Economics 2 Spring 2017 Professor Christina Romer Professor David Romer SUGGESTED ANSWERS TO PROBLEM SET 5 1. The tool we use to analyze the determination of the normal real interest rate and normal investment
More informationReview. Question 1. Answer 1. Question 2. Answer 2. Question 3. Exam Review (Questions Beyond Test 1) True or False? True or False?
Question 1 Review Exam Review (Questions Beyond Test 1) An increase in income causes the IS curve to shift to the right. Answer 1 When income changes we move along the IS curve. Income itself is not an
More informationChapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis
Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Cheng Chen SEF of HKU November 2, 2017 Chen, C. (SEF of HKU) ECON2102/2220: Intermediate Macroeconomics November 2, 2017
More informationEcon 202 Macroeconomic Analysis 2008 Winter Quarter Prof. Federico Ravenna ANSWER KEY PROBLEM SET 2 CHAPTER 3: PRODUCTIVITY, OUTPUT, AND EMPLOYMENT
Econ 202 Macroeconomic Analysis 2008 Winter Quarter Prof. Federico Ravenna ANSWER KEY PROBLEM SET 2 CHAPTER 3: PRODUCTIVITY, OUTPUT, AND EMPLOYMENT Numerical Problems 6. Since w = 4.5 K 0.5 N -0.5, N -0.5
More informationChapter 11 The Determination of Aggregate Output, the Price Level, and the Interest Rate
Principles of Macroeconomics Twelfth Edition Chapter 11 The Determination of Aggregate Output, the Price Level, and the Interest Rate Copyright 2017 Pearson Education, Inc. 11-1 Copyright 11-2 Chapter
More informationECON2123-Tutorial 5 AS-AD Model
ECON2123-Tutorial 5 AS-AD Model Department of Economics HKUST November 7, 2018 ECON2123-Tutorial 5 AS-AD Model 1 / 26 Supply and Demand In every commodity good market, there will be supply and demand,
More informationProfessor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 5
Economics 2 Spring 2016 Professor Christina Romer Professor David Romer SUGGESTED ANSWERS TO PROBLEM SET 5 1. The left-hand diagram below shows the situation when there is a negotiated real wage,, that
More informationMacroeconomic Analysis Econ 6022
1 / 36 Macroeconomic Analysis Econ 6022 Lecture 10 Fall, 2011 2 / 36 Overview The essence of the Keynesian Theory - Real-Wage Rigidity - Price Stickiness Justification of these two key assumptions Monetary
More informationChapter 12 Appendix B
The Effects of Macroeconomic Shocks on Asset Prices Chapter Appendix B By explicitly including the MP and IS curves in the aggregate demand and supply analysis, we can analyze the response of asset prices,
More informationECO 209Y MACROECONOMIC THEORY AND POLICY LECTURE 9: INTRODUCTION TO THE AD-AS MODEL
ECO 209 MACROECONOMIC THEOR AND OLIC LECTURE 9: INTRODUCTION TO THE AD- MODEL Gustavo Indart Slide 1 DEMAND IN THE FIXED-RICE MODEL Everything we have done in the IS-LM model has been in terms of demand,
More informationAggregate Supply and Demand
Aggregate demand is the relationship between GDP and the price level. When only the price level changes, GDP changes and we move along the Aggregate Demand curve. The total amount of goods and services,
More informationAggregate Supply and Aggregate Demand
Aggregate Supply and Aggregate Demand ECO 301: Money and Banking 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 the
More informationChapter 21. The Monetary Policy and Aggregate Demand Curves
Chapter 21 The Monetary Policy and Aggregate Demand Curves The Federal Reserve and Monetary Policy The Fed of the United States conducts monetary policy by setting the federal funds rate the interest rate
More informationKOÇ UNIVERSITY ECON 202 Macroeconomics Fall Problem Set VI C = (Y T) I = 380 G = 400 T = 0.20Y Y = C + I + G.
KOÇ UNIVERSITY ECON 202 Macroeconomics Fall 2007 Problem Set VI 1. Consider the following model of an economy: C = 20 + 0.75(Y T) I = 380 G = 400 T = 0.20Y Y = C + I + G. (a) What is the value of the MPC
More informationChapter 10 3/19/2018. AGGREGATE SUPPLY AND AGGREGATE DEMAND (Part 1) Objectives. Aggregate Supply
Chapter 10 AGGREGATE SUPPLY AND AGGREGATE DEMAND (Part 1) Objectives Explain what determines aggregate supply in the long run and in the short run Explain what determines aggregate demand Explain how real
More informationAnswers to Questions: Chapter 8
Answers to Questions in Textbook 1 Answers to Questions: Chapter 8 1. In microeconomics, the demand curve shows the various quantities of a specific product that a consumer wants at various prices for
More informationPrint last name: Solution Given name: Student number: Section number
Department of Economics University of Toronto at Mississauga ECO202Y5Y Macroeconomic Theory and Policy July 2003 Test Two Dr. Gu Date: Tuesday, July 8, 2003 Time allowed: Two hours Aids allowed: Calculator
More informationChapter 10 Aggregate Demand I CHAPTER 10 0
Chapter 10 Aggregate Demand I CHAPTER 10 0 1 CHAPTER 10 1 2 Learning Objectives Chapter 9 introduced the model of aggregate demand and aggregate supply. Long run (Classical Theory) prices flexible output
More informationAS/AD Model. Prof. Lutz Hendricks. March 9, Econ520
AS/AD Model Prof. Lutz Hendricks Econ520 March 9, 2017 1 / 40 Objectives In this section you will learn 1. how to put IS/LM and labor market clearing together 2. how to derive aggregate supply and demand
More informationECO 2013: Macroeconomics Valencia Community College
ECO 2013: Macroeconomics Valencia Community College Exam 3 Fall 2008 1. The most important determinant of consumer spending is: A. the level of household debt. B. consumer expectations. C. the stock of
More informationOVERVIEW. 1. This chapter presents a graphical approach to the determination of income. Two different graphical approaches are provided.
24 KEYNESIAN CROSS OVERVIEW 1. This chapter presents a graphical approach to the determination of income. Two different graphical approaches are provided. 2. Initially, both the consumption function and
More informationChapter 9 The IS LM FE Model: A General Framework for Macroeconomic Analysis
Chapter 9 The IS LM FE Model: A General Framework for Macroeconomic Analysis The main goal of Chapter 8 was to describe business cycles by presenting the business cycle facts. This and the following three
More informationII. Determinants of Asset Demand. Figure 1
University of California, Merced EC 121-Money and Banking Chapter 5 Lecture otes Professor Jason Lee I. Introduction Figure 1 shows the interest rates for 3 month treasury bills. As evidenced by the figure,
More informationNew Keynesian Model. Prof. Eric Sims. Fall University of Notre Dame. Sims (ND) New Keynesian Model Fall / 20
New Keynesian Model Prof. Eric Sims University of Notre Dame Fall 2012 Sims (ND) New Keynesian Model Fall 2012 1 / 20 New Keynesian Economics New Keynesian (NK) model: leading alternative to RBC model
More informationEconomics 102 Discussion Handout Week 14 Spring Aggregate Supply and Demand: Summary
Economics 102 Discussion Handout Week 14 Spring 2018 Aggregate Supply and Demand: Summary The Aggregate Demand Curve The aggregate demand curve (AD) shows the relationship between the aggregate price level
More informationEcon 100B: Macroeconomic Analysis Fall 2008
Econ 100B: Macroeconomic Analysis Fall 2008 Problem Set #7 ANSWERS (Due September 24-25, 2008) A. Small Open Economy Saving-Investment Model: 1. Clearly and accurately draw and label a diagram of the Small
More information14.02 Principles of Macroeconomics Problem Set #4 - Answers
4.02 Principles of Macroeconomics Problem Set #4 - Answers Due during Week # 9 PART I. TRUE/FALSE/UNCERTAIN. As in microeconomics, the AD-curve is downward sloping since consumers buy less goods when they
More informationEconomics 301 Final Exam. Prof. Daniel. December 17, Answer all questions. Each question is worth 20 points. LABEL EVERYTHING!!!
Prof. Daniel Economics 301 Final Exam Name December 17, 2012 Answer all questions. Each question is worth 20 points. LABEL EVERYTHING!!! 1. Keynesian model with efficiency wage and sticky prices a. Draw
More informationECON 212: ELEMENTS OF ECONOMICS II Univ. Of Ghana, Legon Lecture 8: Aggregate Demand Aggregate Supply Dr. Priscilla T. Baffour
ECON 212: ELEMENTS OF ECONOMICS II Univ. Of Ghana, Legon Lecture 8: Aggregate Demand Aggregate Supply Dr. Priscilla T. Baffour Sections 1. Relaxing a Temporal Assumption Price Level is no longer fixed.
More informationPart2 Multiple Choice Practice Qs
Part2 Multiple Choice Practice Qs 1. The Keynesian cross shows: A) determination of equilibrium income and the interest rate in the short run. B) determination of equilibrium income and the interest rate
More informationECON 330: Money and Banking HW 14 Solution
ECON 330: Money and Banking HW 14 Solution Based on Steven Zhang, edited by Alan Yang 22.5 As labor productivity grows, the long-run aggregate supply curve shifts to the right. This is because the existing
More informationSuggested Solutions to Problem Set 7
Econ 154b Spring 2005 Question 1 Suggested Solutions to Problem Set 7 The IS curve is Y C d I d G 600 0.8ŸY"1000 "500r 400"500r 1000, so 0.2Y 1200"1000r. This is plotted below: Since= e 0, the nominal
More information= C + I + G + NX = Y 80r
Economics 285 Chris Georges Help With ractice roblems 5 Chapter 12: 1. Questions For Review numbers 1,4 (p. 362). 1. We want to explain why an increase in the general price level () would cause equilibrium
More informationChapter 13. Aggregate Demand and Aggregate Supply
Chapter 13 Aggregate Demand and Aggregate Supply 1 Output and Price Level Figure 1 Two-Way Relationship Between Output and Price Level Aggregate Demand Curve Price Level Real GDP Aggregate Supply Curve
More informationYORK UNIVERSITY. Suggested Solutions to Part C (C3(d) and C4)
Page 1 of 5 Pages YORK UNIVERSITY Atkinson College Department of Economics ECON 2450 - Midterm Examination July 13, 2006 Suggested Solutions to Part C (C3(d) and C4) C3 (d). Derive and graph an equation
More informationFinal Exam - Economics 101 (Fall 2009) You will have 120 minutes to complete this exam. There are 105 points and 7 pages
Name Student ID Section day and time Final Exam - Economics 101 (Fall 2009) You will have 120 minutes to complete this exam. There are 105 points and 7 pages Multiple Choice: (20 points total, 2 points
More information5. An increase in government spending is represented as a:
Romer Section 1 1. The IS curve represents combinations of Y and r that: a. are consistent with equilibrium in the money market. b. are consistent with equilibrium in the goods market. c. are positively
More informationMacroeconomics and the Global Economic Environment (FNCE 613) SAMPLE EXAM 1
Macroeconomics and the Global Economic Environment (FNCE 613) SAMPLE EXAM 1 Macroeconomics and the Global Economic Environment (FNCE 613) SAMPLE EXAM 1 NAME (IN BLOCK LETTERS) Class time (CIRCLE ONE):
More informationTOPIC 9. International Economics
TOPIC 9 International Economics 2 Goals of Topic 9 What is the exchange rate? NX back!! What is the link between the exchange rate and net exports? What is the trade deficit? How do different shocks affect
More informationECON Drexel University Summer 2008 Assignment 2. Due date: July 29, 2008
ECON 202-001 Drexel University Summer 2008 Assignment 2 Due date: July 29, 2008 Instructor: Yuan Yuan Name This homework has up to 10 points bonus. Question 1 (40 points, 2 points each): MULTIPLE CHOICE.
More informationFriday, November 30 Handout: Aggregate Demand/Aggregate Supply Model The Dynamics Review
Amherst College Department of Economics Economics 111 Section 3 Fall 2012 Friday, November 30 Handout: Aggregate Demand/Aggregate Supply Model The Dynamics Review Aggregate Demand/Aggregate Supply Model
More informationChapter 23. Aggregate Supply and Aggregate Demand in the Short Run. In this chapter you will learn to. The Demand Side of the Economy
Chapter 23 Aggregate Supply and Aggregate Demand in the Short Run In this chapter you will learn to 1. Explain why an exogenous change in the price level shifts the AE curve and changes the equilibrium
More informationEconomics 102 Discussion Handout Week 14 Spring Aggregate Supply and Demand: Summary
Economics 102 Discussion Handout Week 14 Spring 2018 Aggregate Supply and Demand: Summary The Aggregate Demand Curve The aggregate demand curve (AD) shows the relationship between the aggregate price level
More informationECON 222, Spring 2009 Assignment #3, Answer Key
ECON 222, Spring 2009 Assignment #3, Answer Ke Question (40 marks) a) TF growth rate is constant and equal to At A t a, and the population growth rate is Nt N t n: From the growth-accounting equation we
More informationFINAL EXAM: Macro 302 Winter 2014
FINAL EXAM: Macro 32 Winter 214 Surname: Name: Student Number: State clearly your assumptions when you derive a result. ou must always show your thinking to get full credit. ou have 3 hours to answer all
More informationEric Zivot Economics 301 Department of Economics Winter, 1997 University of Washington. Final Exam
Eric Zivot Economics 301 Department of Economics Winter, 1997 University of Washington General Instructions: Final Exam This exam is closed book and closed notes. The time limit is 120 minutes. Please
More informationEcon 302 Spring Don t forget to download a copy of the Homework Cover Sheet. Mark the location where you handed in your work.
Econ 302 Spring 2004 Don t forget to download a copy of the Homework Cover Sheet. Mark the location where you handed in your work. Homework #4; Chapter 10. This homework has three parts (A, B, C). Each
More informationEcon / Summer 2005
Econ 3560.001 / 5040.001 Summer 2005 INTERMEDIATE MACROECONOMIC THEORY / MACROECONOMIC ANALYSIS FINAL EXAM Name (Last) (First) Signature Instructions The exam consists of 30 multiple-choice questions (Part
More informationSpecific factors and Income Distribution
Specific factors and Income Distribution Chapter 3 Intermediate International Trade International Economics, 5 th ed., by Krugman and Obstfeld 1 Specific factors model the effects of trade on income distribution
More informationChapter 10 Aggregate Demand I
Chapter 10 In this chapter, We focus on the short run, and temporarily set aside the question of whether the economy has the resources to produce the output demanded. We examine the determination of r
More informationBusiness Fluctuations. Notes 05. Preface. IS Relation. LM Relation. The IS and the LM Together. Does the IS-LM Model Fit the Facts?
ECON 421: Spring 2015 Tu 6:00PM 9:00PM Section 102 Created by Richard Schwinn Based on Macroeconomics, Blanchard and Johnson [2011] Before diving into this material, Take stock of the techniques and relationships
More informationAP Macroeconomics. Scoring Guidelines
2018 AP Macroeconomics Scoring Guidelines College Board, Advanced Placement Program, AP, AP Central, and the acorn logo are registered trademarks of the College Board. AP Central is the official online
More informationClass 5. The IS-LM model and Aggregate Demand
Class 5. The IS-LM model and Aggregate Demand 1. Use the Keynesian cross to predict the impact of: a) An increase in government purchases. b) An increase in taxes. c) An equal increase in government purchases
More information13. CHAPTER: Aggregate Supply
TOBB-ETU, Economics Department Macroeconomics I (IKT 233) Ozan Eksi Practice Questions with Answers (for Final) 13. CHAPTER: Aggregate Supply 1-) What can you expect when there s an oil shock? (c) a-)
More informationQuestions and Answers
Questions and Answers Chapter 1 Q1: MCQ Aggregate demand 1. The aggregate demand curve: A) is up-sloping because a higher price level is necessary to make production profitable as production costs rise.
More informationFINAL EXAM. Name Student ID 1. C 2. B 3. D 4. B 5. B 6. A 7. A 8. D 9. C 10. B 11. C 12. B 13. A 14. B 15. C
FINAL EXAM Name Student ID Instructions: The exam consists of three parts: (1) 15 multiple choice questions; (2) three problems; and (3) two graphical questions. Please answer all questions in the space
More informationAGGREGATE DEMAND, AGGREGATE SUPPLY, AND INFLATION. Chapter 25
1 AGGREGATE DEMAND, AGGREGATE SUPPLY, AND INFLATION Chapter 25 2 One of the most important issues in macroeconomics is the determination of the overall price level Up to now, we took the price level as
More informationChapter 11 1/19/2018. Basic Keynesian Model Expenditure and Tax Multipliers
Chapter 11 Basic Keynesian Model Expenditure and Tax Multipliers This chapter presents the basic Keynesian model and explains: how aggregate expenditure (C,I,G,X and M) is determined when the price level
More informationPart B (Long Questions)
Part B (Long Questions) Question B.1: Mundell-Fleming Model with Flexible Exchange Rates Suppose that a small open economy can be represented by the following model with a flexible exchange rate: C d =
More informationChapter 11 Aggregate Demand I: Building the IS -LM Model
Chapter 11 Aggregate Demand I: Building the IS -LM Model Modified by Yun Wang Eco 3203 Intermediate Macroeconomics Florida International University Summer 2017 2016 Worth Publishers, all rights reserved
More informationProblems. the net marginal product of capital, MP'
Problems 1. There are two effects of an increase in the depreciation rate. First, there is the direct effect, which implies that, given the marginal product of capital in period two, MP, the net marginal
More informationIntermediate Macroeconomics-ECO 3203
Intermediate Macroeconomics-ECO 3203 Homework 2 Solution Sample, Summer 2018 Instructor, Yun Wang Instructions: The full points of this homework exercise is 100. Show all your works (necessary steps to
More information13. CHAPTER: Aggregate Supply
TOBB-ETU, Economics Department Macroeconomics I (IKT 233) 2017/18 Fall-Ozan Eksi Practice Questions with Answers (for Final) 13. CHAPTER: Aggregate Supply 1-) What can you expect when there s an oil shock?
More informationTHE AD (AGGREGATE DEMAND) / AS (AGGREGATE SUPPLY) MACRO MODEL
THE AD (AGGREGATE DEMAND) / AS (AGGREGATE SUPPLY) MACRO MODEL Again, we visit the supply and demand framework. However, when applied to Macroeconomics, we use the following terms in setting up our graph:
More informationProblem Set #5 Due in hard copy at beginning of lecture on Monday, April 8, 2013
Name: Solutions Department of Economics Professor Dowell California State University, Sacramento Spring 2013 Problem Set #5 Due in hard copy at beginning of lecture on Monday, April 8, 2013 Important:
More informationSolutions To Problem Set Five
Lecture 6 Simultaneous equilibrium in both goods and financial markets in the IS LM model () Idea: Any point on the IS curve represents the equilibrium level of output at an interest rate in the goods
More informationUniversity of Toronto July 21, 2010 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto July 21, 2010 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationConsumption, Saving, and Investment. Chapter 4. Copyright 2009 Pearson Education Canada
Consumption, Saving, and Investment Chapter 4 Copyright 2009 Pearson Education Canada This Chapter In Chapter 3 we saw how the supply of goods is determined. In this chapter we will turn to factors that
More informationQUIZ 4: Macro Winter Question 1. Would you expect a country to have a larger Deficit/GDP ratio or a Debt/GDP ratio?
Name: QUIZ 4: Macro Winter 2011 You must always show your thinking to get full credit. Question 1 Would you expect a country to have a larger Deficit/GDP ratio or a Debt/GDP ratio? You would expect the
More informationArchimedean Upper Conservatory Economics, October 2016
Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The marginal propensity to consume is equal to: A. the proportion of consumer spending as a function of
More informationExam #2 Review Answers ECNS 303
Exam #2 Review Answers ECNS 303 Exam #2 will cover all the material we have covered since Exam #1. In addition to working these problems, I would recommend reviewing all of your old class notes and quizzes,
More informationAssignment 2 Deadline: July 2, 2005
ECON 1010C Principles of Macroeconomics Instructor: Sharif F. Khan Department of Economics Atkinson College York University Summer 2005 Assignment 2 Deadline: July 2, 2005 Part A Multiple-Choice Questions
More informationEcon 102 Discussion Section 8 (Chapter 12, 13) March 20, 2015
Econ 102 Discussion Section 8 (Chapter 12, 13) March 20, 2015 The Multiplier and Shifting the Aggregate Expenditures Function The multiplier effect describes how changes in autonomous expenditures lead
More informationMACROECONOMICS. Aggregate Demand I: Building the IS-LM Model. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich
11 : Building the IS-LM Model MACROECONOMICS N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: the IS curve and its relation
More informationECON 3010 Intermediate Macroeconomic Theory Solutions to Homework #9 Due: Thursday, November 30, 2017
ECON 3010 Intermediate Macroeconomic Theory Solutions to Homework #9 Due: Thursday, November 30, 2017 Ten LaunchPad multiple-choice questions. You have unlimited attempts to complete the assignment and
More informationNAME: ID # : Intermediate Macroeconomics ECON 302 Spring 2009 Midterm 1
NAME: ID # : Intermediate Macroeconomics ECON 302 Spring 2009 Midterm 1 Instructions: This exam consists of two parts. There are twenty multiple choice questions, each worth 2.5 points (totaling 50 points).
More information14.02 Principles of Macroeconomics Problem Set # 2, Answers
14.0 Principles of Macroeconomics Problem Set #, Answers Part I 1. False. The multiplier is 1/ [1- c 1 (1- t)]. The effect of an increase in autonomous spending is dampened because taxes respond proportionally
More informationECO 209Y L0101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto June 25, 2012 ECO 209Y L0101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total time for
More informationKeynesian Theory (IS-LM Model): how GDP and interest rates are determined in Short Run with Sticky Prices.
Keynesian Theory (IS-LM Model): how GDP and interest rates are determined in Short Run with Sticky Prices. Historical background: The Keynesian Theory was proposed to show what could be done to shorten
More informationPrint last name: Given name: Student number: Section number
Department of Economics University of Toronto at Mississauga ECO202Y5Y Macroeconomic Theory and Policy December 2002 Test Two Instructor: X. Gu Date: Friday, December 6, 2002 Time allowed: Two hours Aids
More informationTest Review. Question 1. Answer 1. Question 2. Answer 2. Question 3. Econ 719 Test Review Test 1 Chapters 1,2,8,3,4,7,9. Nominal GDP.
Question 1 Test Review Econ 719 Test Review Test 1 Chapters 1,2,8,3,4,7,9 All of the following variables have trended upwards over the last 40 years: Real GDP The price level The rate of inflation The
More informationFEEDBACK TUTORIAL LETTER ASSIGNMENT 2 INTERMEDIATE MACRO ECONOMICS IMA612S
FEEDBACK TUTORIAL LETTER 2 nd SEMESTER 2017 ASSIGNMENT 2 INTERMEDIATE MACRO ECONOMICS 1 ASSIGNMENT 2 SECTION A [20 marks] QUESTION 1 [20 marks, 2 marks each] For each of the following questions, select
More informationChapter 22 THE MUNDELL-FLEMING MODEL WITH PARTIAL INTERNATIONAL CAPITAL MOBILITY
Chapter 22 THE MUNDELL-FLEMING MODEL WITH PARTIAL INTERNATIONAL CAPITAL MOBILITY This chapter extends the Keynesian model to allow for international trade in assets in the context of fixed exchange rates
More informationBusiness Fluctuations. Notes 07. Aggregate. Supply. Aggregate. Demand. Aggregate. Demand Shifts. Aggregate. Supply Shifts.
Time Shifts ECON 421: Spring 2015 Tu 6:00PM 9:00PM Section 102 Created by Richard Schwinn Based on Macroeconomics,? Shifts In previous analyses, prices were fixed. We will see this translates into a horizontal
More informationTest 1 Econ322 Section 002 Chappell February 16, 2009
Test 1 Econ322 Section 002 Chappell February 16, 2009 Name Last 5 Digits Instructions Fill in your name and last five digits of your student number on this test sheet. Multiple Choice questions must be
More informationProfessor Christina Romer. LECTURE 24 INFLATION AND THE RETURN OF OUTPUT TO POTENTIAL April 21, 2016
Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 24 INFLATION AND THE RETURN OF OUTPUT TO POTENTIAL April 21, 2016 I. KEY IDEAS II. THE BEHAVIOR OF INFLATION A. Nominal rigidities
More informationA dynamic approach to short run economic fluctuations. The DAD/DAS model. Part 3 The long run equilibrium & short run fluctuations.
A dynamic approach to short run economic fluctuations. The DAD/DAS model Part 3 The long run equilibrium & short run fluctuations. The DAD-DAS model s long-run equilibrium Recall the long-run equilibrium
More informationChapter 22. Adding Government and Trade to the Simple Macro Model. In this chapter you will learn to. Introducing Government. Government Purchases
Chapter 22 Adding Government and Trade to the Simple Macro Model In this chapter you will learn to 1. Describe the relationship between national income and government purchases and tax revenues. 2. Describe
More informationEC202 Macroeconomics
EC202 Macroeconomics Koç University, Summer 2014 by Arhan Ertan Study Questions - 3 1. Suppose a government is able to permanently reduce its budget deficit. Use the Solow growth model of Chapter 9 to
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Econ 105 Study Questions #2: The AD-AS model and Money and Banking From the Kennedy Text: Chapter 5 pp 95-96 Media Ex. #3, #5, #7 Chapter 6 pp 118 N1, N2, N3 Chapter 8 pp140-41 Media Ex. #2, #3, #7, #11,
More informationIntroduction to Macroeconomics
Robert M. Kunst robert.kunst@univie.ac.at University of Vienna and Institute for Advanced Studies Vienna April 8, 2011 Outline Introduction National accounts The goods market The financial market The IS-LM
More information