Kenneth Lingenfelter week 6 Homework

# For is curve ii it takes seven quarters or 21 months

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of the total increase in real GDP. For IS curve II, it takes seven quarters, or 21 months, for real GDP to increase by 50 billion or one-half of the total increase in real GDP. 1e. The IS curve I is in connection with the economy’s response prior to 1991. The IS curve II is in connection with the economy’s response to change in the interest rate since 1991. The interest rates for the first six quarters were larger than the interest rates for IS curve II. Since 1991, the monetary policy effectiveness lag has been longer and the interest rate multiplier has been smaller. 1d. For IS curve II, the real GDP rises less than it does for IS curve I. The changes in the policy effectiveness lag and the interest rates multipliers means that monetary policymakers now have to change interest rates more in response to a given demand shock than they did previously. Chapter 17, Problem #3 3a. The aggregate demand curve returns to its original level, and no change in the nominal money supply, the economy is long-run equilibrium when the expected price level and the actual price level at 1.0. If monetary policymakers change the nominal money supply so as to maintain a price level equal to 1.2 when aggregate demand returns to its original level, then they must change the nominal money supply to Ms′so that 12,000 = 9,000 + Ms′/1.2 or Ms′/1.2 = 12,000 − 9,000 or Ms′ = 1.20(3,000) = 3,600.

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