# ps9ans - Economics 202 Principles of Macroeconomics Name: _...

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Economics 202 Name: _______________ Principles of Macroeconomics Professor Melick Problem Set #9 Due Wednesday April 23, 2008 1. Numerical Problem #2 from Abel and Bernanke Chapter 11, found on pages 432-433. ( ) ( ) 130 0.5 500 100 500 130 0.5 0.5 500 100 500 0.5 230 1000 0.5 0.5 1000 0.5 1000 d d d S Y C G Y Y T r G I r Y Y T r G r IS Y r G T M Y r P M LM Y r P = - - = - + - - - = = - - - + + ⋅ - = - = - ⋅ + - = - = ⋅ + Use IS to replace r in the LM to get the AD curve. ( ) P M T G Y P M Y T G Y P M r Y + - + = + - - + = + = 5 . 0 230 5 . 0 5 . 0 230 5 . 0 1000 5 . 0 Use the fact that in equilibrium 500 = = Y Y to solve for the endogenous variables. ( ) ( ) 85 03 . 0 500 100 500 100 315 03 . 0 500 100 500 5 . 0 130 500 5 . 0 130 03 . 0 1000 30 1000 500 5 . 0 6 1320 1000 5 . 0 6 220 1320 1320 280 500 1320 100 5 . 0 100 230 500 5 . 0 230 = - = - = = - - + = - - + = = = - = - = = = + = + - + = + - + = r I r T Y C r r r Y P M P P P P M T G Y d d for part c) we must modify the IS curve ( ) ( ) 130 0.5 500 200 500 130 0.5 0.5 500 200 500 ' 0.5 330 1000 0.5 d d d S Y C G Y Y T r G I r Y Y T r G r IS Y r G T = - - = - + - - - = = - - - + + ⋅ - = - = - ⋅ + -

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In the short-run there is no change in P . As before, use IS to replace r in the LM to get the AD curve, but now we can solve for Y . ( ) 600 6 1320 100 5 . 0 100 330 5 . 0 330 5 . 0 5 . 0 330 5 . 0 1000 5 . 0 = + - + = + - + = + - - + = + = P M T G Y P M Y T G Y P M r Y Now we can solve for the short-run equilibrium values for the rest of the endogenous variables ( ) ( ) 160 08 . 0 500 200 500 200 340 08 . 0 500 100 600 5 . 0 130 500 5 . 0 130 08 . 0 1000 80 1000 600 5 . 0 6 1320 1000 5 . 0 = - = - = = - - + = - - + = = = - = - = r I r T Y C r r r Y P M d d In the long-run, the price level will change and output returns to the full-employment level so we must re-solve ( ) ( ) LM P M r Y r Y P M IS T G r Y r G r T Y Y r I G r T Y Y G C Y S d d d + = - = - + - = - = - + + - - - = = - - - + - = - - = 1000 5 . 0 1000 5 . 0 5 . 0 1000 330 5 . 0 500 200 500 5 . 0 5 . 0 130 500 200 500 5 . 0 130 Use IS to replace r in the LM to get the AD curve. ( ) P M T G Y P M Y T G Y P M r Y + - + = + - - + = + = 5 . 0 330 5 . 0 5 . 0 330 5 . 0 1000 5 . 0
Use the fact that in equilibrium 500 = = Y Y to solve for the endogenous variables. ( ) ( ) 135 13 . 0 500 200 500 200 265 13 . 0 500 100 500 5 . 0 130 500 5 . 0 130 13 . 0 1000 130 1000 500 5 . 0 11 1320 1000 5 . 0 11 120 1320 1320 380 500 1320 100 5 . 0 100 330 500 5 . 0 330 = - = - = = - - + = - - + = = = - = - = = = + = + - + = + - + = r I r T Y C r r r Y P M P P P P M T G Y d d P LRAS 11 SRAS’ 6 SRAS AD’ AD 500 600 Y

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2. Numerical Problem #3 from Abel and Bernanke Chapter 11, found on page 433. ( ) ( ) IS
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## This note was uploaded on 05/13/2010 for the course ECON 323 taught by Professor Jakes during the Spring '10 term at Alcorn State.

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ps9ans - Economics 202 Principles of Macroeconomics Name: _...

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