10 points goods market money market answer quantity

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Be clear about which curves you have shifted. (10 points) Goods market: Money market: ANSWER: ______ Quantity of Money i 0 S S D D Quantity of Money i 0 S S D D C + I + G + ( X IM ) 45 Real GDP Real Expenditure + X 45 Real GDP S’ i 1 S’ Real Expenditure Interest rate C + I + G + (X – IM) (lower i)
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C) In the chart below, describe how the variables have changed in the new equilibrium after the policy change. Use ↑ to indicate an increase, ↓ to indicate a decrease, and ↔ to indicate no change. (5 points) Money suppply: Government spending: Taxes: ↔ Output: Interest rates: D) After getting out of the recession, Macronesia is growing at its target growth rate. Suppose now that the government of Macronesia wants to reduce its budget deficit without causing output to fall. If the Central Bank and the government coordinate policies, can they achieve this goal? If not, why not? If so, what combination of policies would work? (10 points) A combination of a reduction in government spending (or an increase in taxes) and an increase in the money supply would accomplish this goal. The reduction in government spending reduces the deficit and the expansionary monetary policy ensures that output does not fall. This is actually the combination of policies that occurred during President Clinton’s first budget, which was designed to reduce the deficit. At the same time, expansionary monetary policy helped ensure output growth stayed strong.
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