Econ assignment 12 hrs

Needs to write formula and process 

E

C

N 302

Professor J. Ondrich
F

a

ll 2020

Problem Set II

Page 1 of 2

1. An increase in which of the following would cause the IS curve to shift? To rotate? To both shift and rotate? Which do not affect the position or slope of the IS curve? If there is a shift or rotation, state the direction of the shift or rotation.

(a) consumer confidence

()

a
C

¢

(b) marginal tax rate (t)

(c) marginal propensity to consume (c)

(d) government expenditures (G)

(e) interest sensitivity of the

p
A
demand schedule
(f) interest rate (r)
(g) autonomous net exports (NXa)
(h) business confidence (
p
I
¢
)
2. An increase in which of the following would cause the LM curve to shift? To rotate? To both shift and rotate? Which do not affect the position or slope of the LM curve? If there is a shift or rotation, state the direction of the shift or rotation.
(a) autonomous net exports (NXa)
(b) nominal money supply
()
s
M

(c) responsiveness of the demand for money to income
(d) responsiveness of the demand for money to the interest rate
(e) interest rate (r)
(f) price level (P)
3.
Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports;
1,60025;0.5;2,35025;1,740;200;1,600
apa
CrcIrGNXT
=-==-==-=
.
(a) Compute the value of the multiplier.
(b) Derive the equation for the autonomous planned spending schedule,
p
A
.
(c) Derive the equation for the
IS
curve,
p
YkA
=
.
(d) Using the equation for the
IS
curve, calculate the equilibrium levels of income at interest rates equal to 0, 2, and 4.
(e) Using your answers to part (c), calculate the slope of the
IS
curve,
/
rY
DD
.

ECN 302

Professor J. Ondrich

Fall 2020

Problem Set II

Page 2 of 2
4.
The equation of the LM curve is given by the following formula:
(/),
s
MPhYfr
=-
where
/
s
MP
is the real money supply, h is the response of the money to a $1 change in income at a fixed interest rate, and f is the response of money demand to a one percentage point change in the interest rate. Assume the following values for the exogenous variable
/
s
MP
and parameters h and f in the LM curve:
/400,0.4, and 40.
s
MPhf
===

(a) What is the horizontal intercept of the LM curve?
(b) What is the slope
(/)?
rY
DD
of the LM curve?
(c) What is the equation of the LM curve?
5. Assume that the following equations summarize the structure of a closed economy.

EMBED Equation.DSMT4
0.75();
20025;
250;
(/)0.2440;/200;
20025;
400;
100.
a
a
ds
p
CCYT
Cr
T
MPYrMP
Ir
G
NX
=+-
=-
=
=-=
=-
=
=-

Answer the following questions:
a) What is the equation of the IS curve?
b) What is the equation of the LM curve?
c) What is the equilibrium real output?
d) What is the equilibrium interest rate?
e) What is the level of consumption at equilibrium?
f) What is the level of planned investment at equilibrium?
g) Determine whether leakages equal injections at equilibrium.
h) Assume that
5
r
=
and
1200.
Y
=
Is there an excess demand for money or excess supply of money in this situation? How much? Is there unplanned inventory change? If so, what is the value of the unplanned inventory change?

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