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Assuming this is an IS-LM model
a. Suppose that households are concerned about the future and cut back on their marginal propensity to consume from 0.80 to 0.667. Try this experiment for the Money Supply Target case and the Interest Target Case. What happens to the multiplier? What happens to the slope of the IS curve. What happens to the equilibrium level of income or output and the interest rate? Explain this intuitively.
b. Suppose that households become less uncertain about the future and decide to hold more cash transactions demand for money. They do this reducing autonomous money demand from 30 to 20. Try this experiment for the Money supply Target case and the Interest Target Case. What happens in the money market? What happens to the slope of the LM curve. What happens to the equilibrium level of income or output and the interest rate? Explain this intuitively.
c. Now consider the situation in part a) for the decline in the marginal propensity to consume in the Money supply Target case and the Interest Target Case. Use your intuition and graphical skills. Construct an ISLM curve equilibrium at the base case values of Y=2422.22 and i = 16.56%. Have the IS curves intersect the LM curve at the same equilibrium. The government implements a stimulus package increasing government spending. Show how this shifts the IS curves and the respective new equilibrium Y and i. In the two cases,(Hint: Draw a separate graph for each targeting case.) is fiscal policy more effective or less effective with the new IS curve?
Labor Supply a. Ann's utility can be represented by the function: U (C,L) = ln (C-10) + 3/5 ln(L). She has 16 hours/day to divide into work (H) and leisure (L). She has no unearned income. Derive the formula for her Marginal Rate of Substitution a..
Suppose Y is household income and he is household expenditures on health care. Use the data from the regression output to answer the given question:
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the cost of equipment replacement is 150000 every 6 years, beginning 6 years from now. How much money is required in the trust fund now to build the engineering laboratory and maintain its perpetual operation and equipment replacement
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Suppose that the reserve requirement is 3% on the first 30 million of checkable deposits and 10% on the checkable deposits in excess of 30 million. (Amounts on the balance sheet are in millions of $) Assets- Reserves 15.9, Loans 150.0, Securities 3..
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Suppose it is known that 45% of the population are Coalition voters, 45% are ALP voters, and 10% vote for Greens.
Suppose that Roy could choose how many hours to work at a wage of W and choose to work 7 hours a day. The employer now offers him time-and-a-half wages(1.5W) for every hour he works beyond a minimum of 8 hours per day. Show how his budget constrai..
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