07f101ps8solutions

07f101ps8solutions - Professor Elizabeth Bogan Fall 2007...

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Professor Elizabeth Bogan Fall 2007 Economics 101 Problem Set 8 Solutions Question One A) equilibrium in the goods market Y=100+.8(Y-.3Y)+118-3r+500+400-.06Y Y=1118-3r+.5Y Y=2236-6r Equilibrium in the money market: M s =M d 2.5B=120+.2Y-10r Y=12.5B-600+50r Y=1900+50r B) Solve Y=2236-6r Y=1900+50r C) Solve Y=2460-6r Y=1900+50r D) Solve Y=2236-6r Y=2100+50r since 1900+12.5( Δ B)=2100 Y r I T-G Original 2200 6 100 160 Fiscal Policy 2400 10 88 108 Monetary Policy 2220 2.4 110.8 166 E) Although both Fiscal and Monetary Policies increased GDP, they had different effects on interest rate, Investment, and the budget surplus. The fiscal stimulus raised the interest rate thereby crowding out some private sector Investments. Monetary Policy, on the other hand, pushed down the interest rate thereby boosting private Investment.
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Question Five Part A In 2001 the Fed lowered the FED Funds Target Rate in every meeting because the economy was going into a recession and monetary easing helped make the actual recession very mild. {Lower interest rates made housing mortgages cheaper and promoted housing starts, which
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This note was uploaded on 07/09/2008 for the course ECO 101 taught by Professor Elizabethc.bogan during the Fall '08 term at Princeton.

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07f101ps8solutions - Professor Elizabeth Bogan Fall 2007...

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