Problem Set 3SP11

Problem Set 3SP11 - relevant information is: a) C = 100 +...

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Economics 305 Dr. Neri Problem Set No. 3 due in class on April 7, 2011 Late papers will not be accepted 1. Mankiw, Chapter 9, Problems and Applications (p285 7 th edition, p277 6 th edition, p256 5 th edition), Question No. 1. (Question about banks pay interest on checking accounts) 2. Mankiw, Chapter 10, Problems and Applications (p309 7 th edition, p301 6 th edition, Question No. 2. 3. For each of the following, draw a diagram to show how the curve or curves should shift in the IS-LM model of a closed economy with fixed prices, and explain in a sentence or two the reason(s) for the shift(s). (a) An increase in government purchases (G) financed by borrowing(T does not change) (b) An increase in government purchases (G) financed by printing money (c) An increase in government purchases financed by increasing taxes by the same amount. 4) Consider an economy in the short-run with the price level P fixed at 1 (P = 1). Other
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Unformatted text preview: relevant information is: a) C = 100 + 0.75 * (Y T) b) I = 750 20 * r c) T = 1000; G = 1000; d) Y = C + I + G e) (M/P) d = 0.4 * Y 48 * i f) M s = 1,200 g) (M/P) d = M s /P h) Suppose investors and bond traders expect inflation, e = 0, so that i = r. Answer the following: (i) Calculate the IS curve. Solve for Y in terms of r. (ii) Calculate the LM curve. Again, solve for Y in terms of r. (iii) What are the short-run equilibrium values for Y, r, C, I, private saving, public saving, and national savings. (iv) Show that C + I +G = Y and that S = I (v) Present a properly labeled IS-LM graph showing the equilibrium level of Y and r. (v) Assume that G increases by 200. By how much will Y increase in the short run equilibrium? (vi) Assume that G is back at its original level of 1000, but the money supply increases by 200. By how much will Y increase in the short-run equilibrium?...
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This note was uploaded on 12/04/2011 for the course ECON 305 taught by Professor Terrell during the Spring '08 term at Maryland.

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