HW9_Ch9

# HW9_Ch9 - I d 2=850-200r List everything that could have...

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Name: ____________________________________ Section Number: ____ Recitation Leader’s Name: _____________________________ Homework 9, Due April 16 at the beginning of class 1. (Note: Not all of these numbers come out nicely!) Consider the following economy: Desired Consumption: C d =1275+0.5(Y-T)-200r. Desired Investment: I d =900-200r Real Money Demand L=0.5Y-200i Full-employment output Y=4600. Expected Inflation: π e =0. Suppose that T=G=450 and that M=9000. a. Graph the FE line for this economy. (Note: In order to get full credit for the graph, you must actually graph the lines, not just generic FE, IS / LM lines.) /20

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b. Derive the IS equation. c. Graph the IS curve on the graph that you created above. d. Find the market clearing real interest rate. e. Find the price level that clears the asset market. f. Derive the LM curve. g. Graph the LM curve on the graph above. /30
h. Derive the aggregate demand curve. i. Suppose that the desired investment curve changes to

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Unformatted text preview: I d 2=850-200r List everything that could have caused such a change. j. In the short run, holding the price level fixed, what are the new values of Y and r that clear the goods and money markets? Illustrate this clearly on the graph on the first page. k. In the long run, what happens to the price level and r to return the economy back to its full employment level of output. Illustrate this point clearly on the graph on the first page. /30 2. Find the effects of each of the following on the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, savings, investment, and the price level. Illustrate your answers with appropriate graphs and give a verbal explanation. a. The expected rate of inflation decreases. b. The future marginal product of capital decreases. (Assume that there is no affect on current labor supply.) w N Y r C d S d I d P w N Y r C d S d I d P /10 /10...
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HW9_Ch9 - I d 2=850-200r List everything that could have...

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