problem set3

problem set3 - 110A Macroeconomics Fall 2011 Problem Set...

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110A – Macroeconomics Fall 2011 Problem Set 3 (Due: Tuesday Oct. 18 th 2011) Part I: True, False or Uncertain? Briefly motivate your answer. 1. Money is a liability for the central bank. 2. When the propensity to consume increases and investment decreases, the goods market equilibrium output increases. 3. The price of bonds decreases when the interest rate rises. 4. Investment is a positive function of output and also a positive function of the interest rate. 5. A monetary contraction and a fiscal expansion together lead to an increase in the equilibrium output and interest rate. Part II: Answer the following questions: 1. Explain why the IS curve is downward sloping. 2. Derive the LM curve. In the derivation procedure, explain how money supply and demand determines the slope of the LM curve. 3. Explain what types of policies a central bank can implement to reduce the interest rate. 4.
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problem set3 - 110A Macroeconomics Fall 2011 Problem Set...

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