{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

f01_ps3

# f01_ps3 - Problem Set 3 1 Answer by True Uncertain or False...

This preview shows pages 1–2. Sign up to view the full content.

Problem Set 3 1. Answer by True, Uncertain or False. Explain your answer with a graph or analytically. a. A fiscal expansion must increase consumption, output and investment. b. A fiscal expansion coupled with a monetary expansion causes both output and the interest rate to raise. c. Assume that Investment spending depends only on the interest rate, and not on output, and then a decrease in the budget deficit will cause investment spending to increase. d. In an economy with financial intermediaries (banks), the Central Bank has a greater ability (the economic term would be “discretion”) in moving the LM. 2. Consider the following Good Market model, where we have assumed a linear form for the investment. Y = C+ I+ G C = c 0 + c 1 (Y- T) I = d 0 Y – d 1 i a. Interpret the two parameters d 0 and d 1 . Solve for the equilibrium output in the good market. b. Now you have the IS schedule. Show its slope in the i-Y space. c. How does the slope depend on d 1 ? Give an economic interpretation. Now assume that the money demand is the following (here P=1): YL(i) = eY –fi To be in equilibrium the money supply, M, must be equal to money demand. a. Interpret the two parameters e and f .

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 5

f01_ps3 - Problem Set 3 1 Answer by True Uncertain or False...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online