Calculate an expression for the aggregate demand curve

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Reference no: EM133196546

Assignment:

1. According to the book/learning module:

a) What is potential GDP why is it important?

b) What is the formula for Taylor principle?

2. Deriving the AD curve

Suppose the monetary policy curve is given by r = 1.5 + 0.75π, and the IS curve is given by Y=12-r.

a) Calculate an expression for the aggregate demand curve.

b) Calculate the real interest rate and aggregate output when the inflation rate is 1%, 3%, and 5%.

c) Draw graphs of the IS, MP, and AD curves, labeling the points from part (b) on the appropriate graphs.

3. Deriving the AD curve (Cont.)

a) What is the general equation of the IS Curve?

b) What is the general equation of the MP Curve?

c) Given the general equation of the IS Curve and the general equation of the MP curve, please derive the general equation of the AD Curve.

4. Please derive the AD curve using Quantity Theory of Money method

5. According to the book/learning module:

a) What is PPP? Are we expecting to find evidence for it in the short run or in the long run? What are the obstacles for PPP to not hold?

b) What is Big Mac index, is it arguing for or against PPP, how do you know this?

6. Using an aggregate demand and supply graph, show and describe the effects in both the short run and the long run of the following:

a. A temporary negative supply shock.

b. A permanent negative supply shock.

7. The three characteristics of a coupon bond are: When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate; The price of a coupon bond and the yield to maturity are negatively related; The yield to maturity is greater than the coupon rate when the bond price is below its face value.

Please illustrate the above characteristics using an imaginary 10%-Coupon-Rate Bond Maturing in ten years with a face value equals to $1,000, What will happen to the yield to maturity if the price of the bond is priced at 1200, 1100, 1000, 900 and 800 respectively?

8. If a bank depositor withdraws $2,000 of currency from an account, what happens to reserves, checkable deposits, and the monetary base?

9. How can the adverse selection problem explain why you are more likely to make a loan to a family member than to a stranger?

10. In your own words, conclude what we have covered in the second half of the course, that is the course after the Midterm starting from "The Money Supply Process" (20 point, >300 words) and illustrate in detail what you think can be beneficial to your life from the second half of the course 50 words, Any answer that make sense can work. Please trying to build the link between what you learned in this class to what you see in life to better understand both/Reasonable level of completeness is expected.

BONUS (BONUS can add to a maximum of 5 points. Any point between 95-100 changes to 100 after the BONUS point. Any points below 95 will be added 5 points)

11. There are several types of lags prevent policy makers from shifting the aggregate demand curve instantaneously, what are they and what do you know about them?

Reference no: EM133196546

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