ProblemSet 5F09

ProblemSet 5F09 - 2. Assume the economy is at full...

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Economics 305 Dr. Neri Fall 2009 Problem Set No. 5 due in class on Monday November 23, 2009. Late submissions and e-mail submissions will not be accepted. 1. Assume the economy is at full employment and the Fed increases the rate of growth in the money supply (M increases). a. Analyze the effects of this change in money the money supply output, unemployment, prices and real interest rates in the short and long run. Use clearly labeled IS – LM and AS- AD graphs , where the AS curve is flat in the very short run, and is vertical in the long run. b. Present graphs like the ones I use in class (with time on the horizontal axis) that show the impact on output(Y), unemployment(U), the price level(P), the real interest rate(r), consumption (C) and investment (I) over time. On all of your graphs, use A to label the initial equilibrium values, B for the very short-run values, and C to label the final long-run equilibrium value.
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Unformatted text preview: 2. Assume the economy is at full employment and congress raises taxes (T). a. Analyze the effects of this change in money the money supply output, unemployment, prices and real interest rates in the short and long run. Use clearly labeled IS LM and AS-AD graphs , where the AS curve is flat in the very short run, and is vertical in the long run. b. Present graphs like the ones I use in class (with time on the horizontal axis) that show the impact on output(Y), unemployment(U), the price level(P), the real interest rate(r), consumption (C) and investment (I) over time. On all of your graphs, use A to label the initial equilibrium values, B for the very short-run values, and C to label the final long-run equilibrium value. 3. Mankiw, Chapter 13, Problems and Applications, No. 2 on page 402. This is question no. 3 in the 6 th Edition on page 399 and question no.3 on p. 373 in the 5 th Edition....
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