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ProblemSet 4SP11

# ProblemSet 4SP11 - a Analyze the effects of this change in...

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Economics 305 Dr. Neri Spring 2011 Problem Set No. 4 due in class on Tuesday April 26. 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. 2. Assume the economy is at full employment and congress raises taxes (T).
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Unformatted text preview: 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 11, Problems and Applications, No. 4 on page 337. This is question no. 4 in the 6 th Edition on page 328. 4. Mankiw, Chapter 11, Problems and Applications, No. 7 on page 337. This is question no. 7 in the 6 th Edition on page 328....
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