# soln4 - Problem Set#4 Solutions Textbook Chapter 10...

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Problem Set #4 Solutions Textbook Chapter 10 Exercise 8 a.) ( 29 [ ] ) ( ) 1 ( 1 ~ ) ( ) 1 ( ~ ~ ) ( ) 1 ( ~ ) ( r R b a n Y r R b a n Y Y n r R b a a a a a Y Y Y Y n a a a r R b a a Y Y IM EX G I C Y t t t t t t im ex g i c t t t t im ex g t i c t t t t t t t t - - + = - - = + - - - - - + + + = - + - + + - - + = - + + + = b.) Part of any increase in demand is spent on imports. Therefore, the increase in domestic output (GDP) is smaller. Textbook Chapter 10 Exercise 9 a.) ) )( ( ~ ) )( ( ) 1 ( ) ( ) ( r R b b a Y r R b b a a a a a Y Y Y a a a r R b a r R b a Y Y IM EX G I C Y t c t t c im ex g i c t t t im ex g t i t c c t t t t t t t t - + - = - + - - - + + + = - - + + - - + - - = - + + + = b.) ) ( 1 ~ ) ( ~ b b Y d dR dR b b Y d c t t t c t + - = + - = When 0 c b IS is flatter. A given decrease in t R has a larger effect on short-run output. Consumption and investment both increase.

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Exercise 5 As Fed chairman you are supposed to stabilize output. You want to keep 0 ~ = t Y , which also keeps 0 = π
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soln4 - Problem Set#4 Solutions Textbook Chapter 10...

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