Graphically illustrate the effects of this change in

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c. Graphically illustrate the effects of this change in autonomous consumption on the demand line (ZZ) and Y. Clearly indicate in your graph the initial and final equilibrium levels of output. (5 pts) d. Briefly explain why this reduction in output is greater than (in absolute terms) the initial reduction in autonomous consumption. (5 pts) 2) Again consider the economy described by the equations in question-1. Z = C + I + G C = 500 + .5Y D T = 600 I = 300 Y D = Y - T G = 2000 a. Assume that taxes increase from 600 to 700. What is the new equilibrium level of output? How much does income change as a result of this event? (5 pts) b. What if government spending decreases from 2000 to 1900? What is the new equilibrium level of output? How much does income change as a result of this event? (5 pts) 3) Discuss what is meant by the paradox of saving. (10 pts)
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QUESTIONS RELATED TO CHAPTER-4: THE FINANCIAL MARKET 4) First, explain why the money demand curve is downward sloping. Second, explain what factor(s) will cause shifts in the money demand curve. (10 pts) 5) The demand for money is given by Md = $Y (0.3-i), where $Y = 120 and the supply of money is $30. a. What is the equilibrium interest rate? (4 pts) b. If the central bank wants to decrease i by 2%, at what level should it set the supply of money? (3 pts) c. What is the impact on the interest rate if supply of money is decreased to $25? (3 pts) 6) Discuss the tools of the Federal Reserve and explain how each can be used to change the money supply and equilibrium interest rate. (10 pts) 7) Graphically illustrate and explain what effect a purchase of bonds by the Federal Reserve will have on the money market. (10 pts) 8) Use the market for central bank money to answer this question. Graphically illustrate and explain what effect an increase in the reserve deposit ratio (θ) will have on this market and on the equilibrium interest rate. (10 pts) 9) What is the money multiplier and what factors determine its size? (10 pts)
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