Problem set 1

# Graphically illustrate the effects of this change in

• Homework Help
• 2
• 50% (4) 2 out of 4 people found this document helpful

This preview shows page 1 - 2 out of 2 pages.

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)

Subscribe to view the full document.

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)
• Fall '08
• NAGY,KRISZTINA

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern