If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y − 20,000r, andpotential output equals 34,000, what real interest rate must the Federal Reserve set to bring theeconomy to full employment?
Q: If the demand for a good increases when incomes rise and decreases when incomes fall, the good is…
A: A normal good is the good whose demand is directly related to the income of consumer. An inferior…
Q: the average cost of producing 10 sweaters is $6.50 and the marginal cost of producing the tenth…
A: The marginal cost means to the increase in production costs generated by the production of…
Q: Mayers & Smith Corp. has a fertilizer plant. The probability of an explosion at the plant depends on…
A: Marginal cost refers to the cost incurred from the production of one more unit of a good while…
Q: Suppose in the long-rung the production function of a competitive firm is Q=f(L,K)= L2/³K¹/4, where…
A: Given Production function = Q=L23K14 Price per output = p Cost per unit of labor = w Cost of capital…
Q: ing. In the first round, player 1 proposes a division z = (₁, 72, 73), with 7₁ +1₂ + 13 = 1. After…
A: Backward induction is a technique for figuring out the best course of action by going backward in…
Q: How might advertising lead to a shift in the demand curve? By increasing the popularity of inferior…
A: Demand curve is the curve which shows all the possible combination of the quantity demanded at the…
Q: Exercise 3: merger example Algoma Steel Inc. and Stelco Steel Inc. Merger? Suppose you work at the…
A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…
Q: Three players bargain over the division of 1 dollar. There are at most three rounds of bargain- ng.…
A: The technique of determining the appropriate course of action by working backwards in time from the…
Q: Two prospecting partners, Curtin and Dobbs, find an area containing 40 ounces of gold. For each day…
A: Given: Curtin and Dobbs are two prospecting partners. Both alternatively serve as watchman at night.…
Q: Gina and Bob are co-owners of a surf shop. Both Gina and Bob prefer to skip work and go surfing, but…
A: Under a Simultaneous game, each player chose their best response without knowing the response or…
Q: • Explain why an increase in U.S. interest rates relative to UK interest rates would affect the…
A: The cost of converting one currency into another across borders or economic zones is known as an…
Q: Draw a production possibilities frontier (PPF) for oil and food, where food production (Qf) is in…
A: Two countries trade with one another on the basis of differences in factor endowments. The…
Q: To manage cash flow, you should _____ and then subtract expenses you expect to incur. Select one:…
A: Since you have posted multiple questions, we will provide the solution only to the first question as…
Q: Suppose that Panasonic and LG are the only two firms that can produce a new type of holographic TV.…
A: A strategy that gives the highest payoff among all strategies irrespective of the action of another…
Q: There has been an increase in the demand for liquidity (i.e. cash) due to heightened uncertainty.…
A: The graph above shows the currency in circulation ranging from March 2020 to March 2021.
Q: A company is considering the purchase of either machine A or machine B. And the interest rate is…
A: Present worth analysis for cost alternative: In a present worth analysis of cost alternatives, the…
Q: A. appreciation of the dollar. OB. a decrease in the demand for yen. OC. depreciation of the yen. D.…
A: If the dollar used to buy 120 yen and now buys 100 yen , there has been depreciation of the dollar.
Q: For each of the production functions below, find the marginal products of both inputs, and indicate…
A: Note: “Since you have posted multiple questions, we will provide the solution only to the first…
Q: Cite an example of how governments can affect economic growth.
A: Economic growth is the process through which the final commodities and services produced by the…
Q: The following graph plots a short-run Phillips curve for a hypothetical economy. Show the short-run…
A: The Phillips curve depicts the correlation between the unemployment rate and the rate of inflation.…
Q: If the Consumer Price Index rises from 140 in a year to 150 in the following year, the rate of…
A: CPI is the consumer price index. Inflation is the increase in price level over a period of time.…
Q: 17.1You’re the manager of global opportunities for a U.S manufacturer who is considering expanding…
A: The expected profit is calculated by multiplying the profit probability by the profit value. The…
Q: You are planning to setup a new food truck, where you will be selling two types of sandwiches…
A: profit is the main motivator for any firm because it pays off the cost and encourage to-do more…
Q: Select one: a. as a result of the change in endowment, the output of food has increased, while the…
A: Trade between two countries depends on comparative advantage with respect to differences in factor…
Q: PRICE 20 18 16 14 12 10 8 6 a. impose a tax of $2 per unit. b. introduce a subsidy of $2 per unit.…
A: A government subsidy is a financial contribution to an organisation. It lowers the price of the…
Q: The marginal revenue product of a factor shows how much an additional unit of a factor adds to…
A: Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: 7. All of the following except one are initials of international trade organizations. Which is the…
A: The exchange or trade of products and services between various countries is referred to as…
Q: The attached graph shows the demand curve for a new digital product that you developed, (It might be…
A: demand curve is downward sloping curve which represents the inverse relationship between price and…
Q: Briefly describe the "Quantity Theory of Money."
A: The monetarist school of economic thought advocates monetary policy over fiscal policy by defining…
Q: Agents a₁,...,ay each have strict preferences over houses h₁,...,hy. Houses are to be allocated…
A: If there exists an allocation, where one person can be made better off without decreasing the payoff…
Q: A firm is considering installing a new computer system. The new computer system is expected to save…
A: In the present worth method of comparison, by using an interest rate of I, the cash flows of each…
Q: In Faria, a small monetary economy, the reserve requirement is 15%. By how much money supply changes…
A: The monetary base refers to the total amount of money that is either in the hands of the general…
Q: If the number of employed people equals 185 million, the number of unemployed people equals 15…
A: The labour force participation rates is calculated as the labour force divided by the total…
Q: 33. Rodrigo gets a $1.00 discount by buying Cheerios on the end of the aisle that have a…
A: A selling tactic known as price discrimination involves charging clients various rates for the same…
Q: Canada is a party to which of the following RTAS (regional trade agreeme A.ASEAN b.EU C.NAFTA…
A: Trade agreements are contracts between two or more trading nations that promote a favorable trade…
Q: Suppose the Fed decides it wants to maintain output at the potential GDP level of $125 million even…
A: Appreciation refers to the rise in the external value of the currency in terms of another currency.…
Q: During a recession, progressive income tax rates act as an automatic stabilizer by O decreasing the…
A: Automatic stabilisers are continuing government initiatives that modify taxation and spending in an…
Q: a) What is the pre-tax equilibrium price of a domestic airline ticket? b) How much more will…
A: The effect of the tax on the supply-demand equilibrium is to shift the quantity toward a point where…
Q: None of the answer choices are correct. Empirical research finds little evidence to support the use…
A: A place where someone works, whether for oneself or for an employer, is referred to as a workplace.…
Q: Player 1 Cooperate (C) Defect (D) Cooperate (C) 3,3 8,0 Player 2 Defect (D) 0,8 1, 1 Suppose the…
A:
Q: 1.What is "economic inequality"? Give some examples and explain your reasons?
A: Due to the uneven distribution of wealth and income within the economy, there is a problem with…
Q: 3. Jukt Electronics has the exclusive rights to sell microchips in Nirvana (i.e. it is a monopolist…
A: Given, Inverse Market Demand: P(Q)=360-Q Marginal Cost: MC(Q)=0.5Q
Q: Price and costs (dollars per unit) $50 $40 $30 $20 $10 0 30 60 MR 90 D MC ATC 120 150 180 Quantity…
A: Under monopolistic competition, the profit will maximize when the marginal revenue (MR) is equal to…
Q: Two bidders compete in a sealed-bid auction for a single indivisible object. For each bidder i, the…
A: A second-price sealed bid auction is a type of auction in which the player who bids the highest have…
Q: A shopping center is to be built in one of four different cities. The cash flow estimates associated…
A: The conventional B/C ratio is calculated as B/C ratio=AW of benefit -AW of disbenefitsAW of total…
Q: In an OLS regression, which value represents the "best" R2 in terms of explained variance in the…
A: R2 shows the goodness of fit of the model. It shows how the regression line fits the real data…
Q: Results Real Estate had 6 home sales during the week: $150,000, $140,000, $240,000, $158,000,…
A: Mean is the average value of given observations. Mean is calculated by the following formula :-…
Q: Year 2022 2023 Potential Real GDP $18.1 trillion 18.4 trillion Real GDP $18.1 trillion 18.6 trillion…
A: Monetary policy: Monetary policy refers to the macroeconomic strategy of the central bank. The…
Q: (Problem 3, Page 477) In a certain economy the expectations-augmented Phillips curve is π = π² - 2…
A: Phillips curve, graphic representation of the economic connection between the rate of unemployment…
Q: Use the following figure to answer the question: If the monopolist charges the same price to all…
A: Monopolist market is the one where there is single seller attaining highest profit where marginal…
If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y − 20,000r, andpotential output equals 34,000, what real interest rate must the Federal Reserve set to bring theeconomy to full employment?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a)First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b)Draw an IS-MP diagram that’s consistent with the state of the U.S. economy in 2009. Make sure that your IS and MP curves intersect in a place that is consistent with the setup of the problem, above. In particular, do your IS and MP curves intersect on the flat part of the MP curve, or the upward-sloping part? And do your IS and MP curves intersect at a positive real interest rate or a negative real interest rate? c)Suppose that the U.S. Congress and President pass a fiscal stimulus package that increases government spending.…The Short-Run Aggregate Supply Curve (AS) is given by: y=20pAnd the Short-Run Aggregate Demand Curve (AD) is given by: y=25,000−20p Suppose instead that the Central Bank wanted to take action to keep the price-level completely stable. This would entail keeping it constant at its current rate. Suppose also that the Central Bank targets the interest rate directly. Suppose also that: • The Marginal Propensity to Spend is 0.75. • Every 1% increase in the interest rate leads to a decrease in Autonomous Consumption of 250 and a decrease in Autonomous Investment of 250. How much would the Central Bank need to change the current interest rate in order to keep the price level from changing through the medium-term as this output gap closes in the economy?A Keynesian economy is described by the following equations. Consumption Cd = 250 + 0.5(Y - T) - 250r Investment Id = 250 - 250r Government purchases G = 300 Government taxes T = 300 Real money demand L = 0.5Y - 500r + πe Money supply M = 3000 Full-employment output Y = 1250 Expected inflation πe = 0 (HINT a: The expected rate of inflation is assumed to equal zero so that money demand depends directly on the real interest rate, which equals the nominal interest rate. Domestic Savings, Sd =Y - C - G. In equilibrium set domestic savings equal to domestic investment, so Sd = Id) Calculate the values of the real interest rate (r), consumption (Cd), and investment (Id) for the economy in general equilibrium.
- Desired consumption is C^d = 100 + 0.8Y - 500r - 0.5G, and desired investment is I^d = 100 - 500r. Real money demand is (M^d)/P = Y - 2000i. Other variables are πe = 0.05, G = 200, = 1000, and M = 2100. Find the equilibrium values of the real interest rate, consumption, investment, and the price level.Assume that investment, government expenditures, taxes are autonomous.C = 2000 + 0.65* (Y-T)I = 900 – 50iG = 400T = 1500M = 1000P = 2L = 0.50Y-25ia.What is the value of the sensitivity money demand to the level of income?b.What is the value of the nominal supply?c.What expression represents the IS curve?d.What is the equilibrium interest rate, i*?e.What is the equilibrium income, Y*?By using IS-LM-FE and AD-AS frameworks show;According to RBC theory, what is the effect of an increase in government expenditures on real interest rate (r), real output (Y), and price level (P) in the short and in the long-run? Why? Explain with details.
- A Keynesian economy is described by the following equations. Desired consumption equation: Cd = 300 + 0.4(Y – T) – 300r Desired investment equation: I d = 300 – 300r Government purchases G = 317 Taxes T = 305 Money demand equation L = 0.4Y – 600(r + πe ) The nominal money supply M = 4428 The expected rate of inflation, πe = 0.03 Full-employment values of output Y = 1305 2 (a) Calculate the values of the real interest rate, the price level, consumption, and investment for the economy in general equilibrium. (b) Now suppose government purchases increase to 347 with no change in taxes. What will be the real interest rate, the price level, output, consumption, and investment in the short run? What will be the real interest rate, the price level, output, consumption, and investment in the long run?The following set of equations describe an economy: C = 14,400+ 0.5 (YT) - 40,000r lp = 8,000 - 20,000r G = 7,800 NX = 1,800 T = 8,000 Y* = 40,000 Suppose that the real interest rate (r) is 10%. Is the economy in long run equilibrium? If not, what real interest rate should central bank set to restore the economy back to the long run equilibrium? And what methods can central bank use to adjust the interest rate? (Round your answer to 2 decimal places)How do inflationary expectations influence interest rates on mortgage? Please elaborate by expressing your thoughts about your findings in at least
- Let’s see just how much high expected inflation can hurt incentives to save for the long run. Let’s assume the government takes about one‑third of every extra dollar of nominal interest you earn. You must pay taxes on nominal interest. However, if you are rational, you will care mostly about your real, after‑tax interest rate when deciding how much to save. ?i ??=?Eπ=π 23×?23×i (23×?)−?(23×i)−π Nominal interest rate Inflation (no surprises) Nominal after‑tax return Real after‑tax return 15% 12% 10% -2% 6% 3% 12% 9% 90% 87% 900% 897% Calculate the nominal and real after‑tax return for each case.Nominal interest rate = 6%, inflation = 3% Nominal after‑tax return: % Real after‑tax return: % Nominal interest rate = 12%, inflation = 9% Nominal after‑tax return: % Real after‑tax return: % Nominal interest rate = 90%, inflation = 87% Nominal after‑tax return: %…Consider a closed economy where the goods and money markets are described by the following relationships: C 500+ 0.8 (Y-T) I= 500 10r M P a) 0.1Y35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). mpute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. e) Suppose that, instead of relying on monetary policy, the government intends to take an active role in restoring the economy to the original equilibrium by pursuing an expansionary fiscal policy. How much should government spending change by? With the help of graphs, explain very carefully, the impact of this policy on the economy. f) An…An economy is described by the following equations: Desired consumption cd=130 +0.5(Y-T)-500r Id=100-500r Desired investment Government purchases G = 100 Taxes T = 100 Real money demand Money supply L = 0.5Y - 1000r M = 1320 Full-employment output Y = 500 Assume that expected inflation is zero so that money demand depends directly on the real interest rate. Also assume the SRAS is horizontal at the current price level. a. Write the equations for the IS and LM curves. (These equations express the relationship between r and Y when the goods' and asset mar- kets are in equilibrium.) b. Calculate the full-employment values of output, the real interest rate, the price level, consumption, and investment.