Derive the equations of the is and lm curves

Assignment Help Microeconomics
Reference no: EM133124241

Consider the IS-LM model with completely sticky goods prices in the SR closed economy. Suppose the consumption function is given by C=100+0.8*(Y-T) and the investment function is given by I=600-5000*r. G=800 and T=500. Money supply M=25000 and general price level P=5. The real money demand function is given by L(i,Y)=0.2Y/i. =2% in the Fisher equation.

  1. Derive the equations of the IS and LM curves and solve for the equilibrium real output, real interest rate, consumption and investment spending.
  2. Consider a one-time open market sales of bonds of 100 by the Bank of Canada (to a private bank). Suppose all private banks have the same reserve ratio of 4% and the general public's cash-to-deposit ratio is 0.

i. After all (infinite) rounds of "money creation/destruction", show the changes in the balance sheets of the private banking system, the Bank of Canada and the general public. By how much does the money supply increase/decrease?

ii. Use the IS-LM model with completely sticky goods prices to graph the impact of such open market sales in the SR closed economy. How will equilibrium real output, real interest rate, consumption and investment spending change? Explain. (DO NOT solve numerically.)

Reference no: EM133124241

Questions Cloud

Explain three types of risk assessment procedures : Explain three types of risk assessment procedures that Auditing standards indicate the auditor needs to perform
How much do intermediaries pay for one kilo of dried cacao : How much do intermediaries pay for one kilo of dried cacao?
Labour mobility and wage-price flexibility : Labour mobility and wage/price flexibility are needed for adjustment to temporary shocks in a mone- tary union. TRUE
What amount shall be reported as provision for lawsuit : An appropriate discount rate of 6% per year. The present value of 1 at 6% for one period is 0.9434. What amount shall be reported as provision for lawsuit
Derive the equations of the is and lm curves : Derive the equations of the IS and LM curves and solve for the equilibrium real output, real interest rate, consumption and investment spending.
Inconsistency model without economic shocks : Consider the time inconsistency model without economic shocks. Assume that the social cost of inflation so that the marginal social cost of inflation . Assume
Working at the reception desk in a large : You are working at the reception desk in a large, busy veterinary practice. The waiting room is full of people and pets as it is late in the day on Friday befor
Optimal strategy of development : "Balanced and unbalanced growth need not be conflicting and an optimal strategy of development should combine some elements of balance and unbalance." Discuss w
Economic relationship between these markets and sugar : The last part of this question looks at the likely impact of a tax on sugar- sweetened drinks on the market for non-sweetened, artificially sweetened or low- su

Reviews

Write a Review

Microeconomics Questions & Answers

  What is the price elasticity of supply

What are excise taxes and tariffs? How do they affect the market and what is the price elasticity of Demand? Express the definition in an equation form. Please give an example.

  What does the article mean that argentina peg collapsed

The Economist observed the following: "In Argentina, many loans were taken out in dollars: this had catastrophic consequences for borrowers once the peg.

  Compare kluvers arguments with endangered languages and

according to kluver what are the ramifications of technology and globalization on global communication?compare kluvers

  Define how mcdonald can improve

Your presentation should look professional. Do not copy and paste tables of data from the Internet, but recreate the data within the Powerpoint slide.

  What are implications of regarding usage of standard project

However, it has not yet been decided whether prototype materials will be purchased from a vendor or produced in another Ajax division. What are the implications of regarding usage of any standard project scheduling technique?

  Summarize the hpt landscape model

In your own words not from the text book, what are the most important descriptors of HPT? AND Why? Summarize the HPT Landscape Model?

  Justify which form of payment has the most merit

Describe how private and government insurers and payers impact actual reimbursement. Justify which form of payment has the most merit. Explain why.

  Describe the expectations hypothesis theory

Describe the "Expectations Hypothesis" theory as it attempts to explain the term structure of interest rates. Describe the "Liquidity Premium Preferred Habitat" theory as it attempts to explain the term structure of interest rates.

  Determine the average inflation rate for this commodity

Determine the average inflation rate for this commodity over this two-year period. The CPI for 1995 was 152.4 and for 2010 it was 218.1. What was the average general inflation rate during these years? To calculate the NPW (at year 0) of N annual cash..

  Explain how you would respond with economic policies.

Currently, the economy is in equilibrium at Q = 3200 (where Q = potential GDP) and P = 100. You can use monetary and fiscal policies to affect aggregate demand but you cannot affect aggregate supply in the short run.

  Illustrate that why the mc is not u-shaped

In general, marginal cost curve is U-shaped as you learned in my lecture and textbook. However, exception exists. Would you please provide one particular industry as an example to illustrate that MC is not U-shaped

  How many units of should the firm use

A competitive firm produces output using three fixed factors and one variable factor. The firm's short-run production function is q = 305x - 2x2.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd