ec301
Chapter 14.
Problem 1
a) For IS curve I, real GDP equals 8,800 − 25(4) − 25(4) − 25(4) − 25(4) − 20(4) − 20(4) − 20(4) − 15(4) − 15(4) −10 (4) = 8,000.
For IS curve II, real GDP equals 8,400 − 5(4) − 5(4) − 5(4) − 5(4) − 10(4) −15(4) − 15(4) − 15(4) − 20(4) = 8,000.
b) IS curve I, real GDP equals 8,050, 8,075, 8,100, 8,120, 8,140, 8,160, 8,175, 8,190, and 8,200. IS curve II, real GDP equals 8,010, 8,015, 8,020, 8,025, 8,035, 8,050, 8,065, 8,080, and 8,100.
c) Real GDP increases by 200 billion for IS curve I. The increase in real GDP for IS curve II equals 100 billion.
d) For IS curve I 4 quarters increase by 100 billion. For IS curve II 7 quarters increase by 50 billion.
e) These parameters reflect the fact that since 1991, the monetary policy effectiveness lag has been longer and the interest-rate multiplier has been smaller.
f) The changes in the policy effectiveness lag and the interest-rate multipliers mean 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
a) Monetary policymakers would have to increase the nominal money supply to 3,600 to keep the price level and expected price level equal to 1.2.
b) Monetary policymakers would have to increase aggregate demand so as to keep aggregate demand and long-run aggregate supply equal to 12,000 at a price level of 1.2. That would require an increase in the nominal money supply.
c) Monetary policymakers can signal to firms and workers what they know about the change in the real exchange rate via a change in the nominal money supply if workers and firms expect monetary policymakers to maintain the price level at 1.2.
Chapter 13
Problems #1 Component of M1 Component ofM2
Currency 915.
Demand deposits 507.
Other checkable deposits 405.2
Traveler’s checks 4.7
Equals M1 1831.9 1831.9
Savings deposits, including money market deposit accounts 5,327.9
Small-denomination time
Problem 1
a) For IS curve I, real GDP equals 8,800 − 25(4) − 25(4) − 25(4) − 25(4) − 20(4) − 20(4) − 20(4) − 15(4) − 15(4) −10 (4) = 8,000.
For IS curve II, real GDP equals 8,400 − 5(4) − 5(4) − 5(4) − 5(4) − 10(4) −15(4) − 15(4) − 15(4) − 20(4) = 8,000.
b) IS curve I, real GDP equals 8,050, 8,075, 8,100, 8,120, 8,140, 8,160, 8,175, 8,190, and 8,200. IS curve II, real GDP equals 8,010, 8,015, 8,020, 8,025, 8,035, 8,050, 8,065, 8,080, and 8,100.
c) Real GDP increases by 200 billion for IS curve I. The increase in real GDP for IS curve II equals 100 billion.
d) For IS curve I 4 quarters increase by 100 billion. For IS curve II 7 quarters increase by 50 billion.
e) These parameters reflect the fact that since 1991, the monetary policy effectiveness lag has been longer and the interest-rate multiplier has been smaller.
f) The changes in the policy effectiveness lag and the interest-rate multipliers mean 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
a) Monetary policymakers would have to increase the nominal money supply to 3,600 to keep the price level and expected price level equal to 1.2.
b) Monetary policymakers would have to increase aggregate demand so as to keep aggregate demand and long-run aggregate supply equal to 12,000 at a price level of 1.2. That would require an increase in the nominal money supply.
c) Monetary policymakers can signal to firms and workers what they know about the change in the real exchange rate via a change in the nominal money supply if workers and firms expect monetary policymakers to maintain the price level at 1.2.
Chapter 13
Problems #1 Component of M1 Component ofM2
Currency 915.
Demand deposits 507.
Other checkable deposits 405.2
Traveler’s checks 4.7
Equals M1 1831.9 1831.9
Savings deposits, including money market deposit accounts 5,327.9
Small-denomination time