Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consumptionand investment functions are, respectivley,C = 100 + 0.8(Y – T),I = 100 – 2000r,that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve isMY200The government is currently implementing a policy= 80,Ť = 50,and the central bank (CB) is supplying M = 1000.Expected inflation is = 0.Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption functionchanges toC = 40 + 0.8(Y – Ť).Focus only on the economy's short-run responses, that is, when the price level P cannot adjust.Now suppose the government does nothing, and the CB wants to stabilise the economy with a constant r-target policy.a) The CB must react by• money supply, tob) Due to the CB's monetary policy, the LM curvec) Output, Y, changes tod) Consumtpion, C, changes toe) Private investment, I, changes tof) Suppose that this monetary policy stays in place in the long-run, and the consumption function remains low. Then long-run output* This would imply the long-run price level isimplying a sharpbecomesand the interest rate

This can be described as a concept that explains the use, or expenditure of resources, commodities…

Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consum and investment functions are, respectivley, C = 100+ 0.8(Y-T), I = 100 - 2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M Y 200 The government is currently implementing a policy G = 80, T = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is #² = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption fur changes to C = 40 +0.8(Y-T). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Now suppose the government does nothing, and the CB wants to stabilise the economy with a constant r-target policy. a) The CB must react by + money supply, to

Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the short-run. Suppose that the consum and investment functions are, respectivley, C = 100+ 0.8(Y-T), I = 100 - 2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M Y 200 The government is currently implementing a policy G = 80, T = 50, and the central bank (CB) is supplying M = 1000. Expected inflation is #² = 0. Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption fur changes to C = 40 +0.8(Y-T). Focus only on the economy's short-run responses, that is, when the price level P cannot adjust. Now suppose the government does nothing, and the CB wants to stabilise the economy with a constant r-target policy. a) The CB must react by + money supply, to

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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