What is autonomous consumption multiplier

Assignment Help Business Management

Reference no: EM133185426

1. State ‘True' or ‘False' and explain why. (Full credit is given if the explanation is correct)

a. A central bank can maintain fixed exchange rate while targeting inflation.

b. US Federal Reserve system has a hierarchical mandate on achieving its goals.

c. US Federal Reserve targets headline inflation

d. US Federal reserve follows a monetary policy rule

e. Time Inconsistency problem occurs when a central bank uses discretionary policy.

a. What are three motives of money demand according to Keynes?

b. What is equation linking velocity and demand for money according to Keynesian Approach?

c. What is the impact on velocity as a result of

i. Economy goes in to a recession

ii. Credit cards are made illegal

iii. Interest rate rises

Hint: First check what happens to the demand for money, and then use the equation : V = Y/f(i,Y)

2. Consider the following components of the Aggregate Demand.

i. Consumption: C=200 + 0.2 (Y-T)

ii. Investment: I = 100 - 200i

iii. Government expenditure: G = 100

iv. Tax : T =0

a. How much is the Investment Demand if interest rate is 10%

b. How much is the Aggregate Demand (AD)? (you may express it in terms of Y).

c. Draw a diagram showing AD and Y.

d. How much is the equilibrium output (Y) in the economy? (Use the diagram or solve it using algebra).

e. What is the autonomous consumption multiplier?

f. What is the government expenditure multiplier?

g. What is the tax multiplier?

h. Consider that interest rate increased to 20%. Redo (a), (b), (c) and (d).

i. Draw the IS curve - which is a diagram of i and equilibrium Y.

j. What are the factors that shift the IS curve?. Explain the variable and direction of the shift.

3. Assume the monetary policy curve to be r=1.5+0.75 π

b. Calculate the real interest rate (r) when inflation rate (π) is 2%, 3%, and 4%

c. Draw the MP curve

d. Assume that the Fed change the MP curve to r=2.5+0.75 π. Calculate the real interest rate when inflation rate is 2%, 3%, and 4% and draw the new MP curve.

e. Does the new curve represent tightening or loosening of the monetary policy?

Reference no: EM133185426

Questions Cloud

Contracting with imperfect information : Consider a manufacturing firm which needs to seek some outside legal help from a law firm.

Architecture of markets and firms : Write a short essay on how and why the "architecture" of markets and the "architecture" of firms help decide how well markets and firms,

Philosophical worldview and research methodology : How does understanding the connection between philosophical worldview and research methodology assist in your research approach?

Describe in about TESLA : Describe in about TESLA. Find out how many women the company has on the board.

What is autonomous consumption multiplier : Does the new curve represent tightening or loosening of the monetary policy? What is the autonomous consumption multiplier?

Mercosur rip and south american integration : What benefits does Uruguay enjoy by being part of Mercosur? Is the Mercosur a stumbling block for global integration?

Thailand and the coup trap : How do firms in Thailand overcome market failure? What costs and benefits do US based Ford and British companies experience has a result of FDI in Thailand?

Yums china fiasco shows danger of food scandals : What strategic goals did Yum! Brands/ KFC when entering China? What approach to or mode of entry do you believe that Yum! Brands/ KFC used to enter China?

Expressing concerns about inflation : Most recently, the public has been expressing concerns about inflation. What impact will an increase in interest rates have on the economy as a whole?

User Account

All Pages