Law 531 Week 1 Gdp Question Paper
Chapter 14
You are given the following two IS curves that show how real GDP (Yt) in the current time period t depends on the current interest rate and interest rates in previous periods, where rt is the interest rate in time period t. Furthermore each time period corresponds to a quarter or three months.
Yt = 8,800 - 25rt - 25rt-1
25rt-2 - 25rt-3 - 20rt-4 - 20rt-5
20rt-6 - 15rt-7 - 15rt-8 - 10rt-9 Yt = 8,400 - 5rt - 5rt-1
5rt-2 - 5rt-2 - 5rt-4 - 10rt-5
15rt-6 - 15rt-7 - 15rt-8 - 20rt-9
Suppose that the Fed can set the interest rate and that for the last 10 quarters, the interest rate has been 4 percent.
Verify that initially real GDP equals 8,000 for both IS curves.
Answer: Since the interest rate has been 4 percent for the last ten quarters, then IS curve I equals 8,800 - 25(4) - 25(r) - 25(r) - 25(4) - 20(r) - 20(4) - 20(4) - 15(4) - 15(4) - 10(4) = 8,000. IS curve II equals 8,400 - 5(4) - 5(4) - 5(4) - 5(4) - …show more content…
Initially the nominal money supply equals $3,000. In addition, suppose that the expectations of firms and workers are rational in the sense defined on p. 547.
Calculate points on the aggregate demand curve when the price level equals 0.8, 1.0, 1.2, 1.25, and 1.5, given the initial value of the nominal money supply.
Answer:
Price Level |0.8 |1.0 |1.2 |1.25 |1.5 | |Real GDP |12,750 |12,000 |11,500 |11,400 |11,000 | |
Suppose that natural real GDP equals $12,000 and that the short-run supply curve is given in the table below, where the price surprise equals P - Pᶱ and Pᶱ is the expected price level:
Price surprise -0.2 0.0 0.2 0.25 0.5
Real GDP 11,900 12,000 12,100 12,125 12,250
Given that the expected price level is initially 1.0, explain why the economy is in long-run equilibrium when the price level equals 1.0 and real GDP equals
You are given the following two IS curves that show how real GDP (Yt) in the current time period t depends on the current interest rate and interest rates in previous periods, where rt is the interest rate in time period t. Furthermore each time period corresponds to a quarter or three months.
Yt = 8,800 - 25rt - 25rt-1
25rt-2 - 25rt-3 - 20rt-4 - 20rt-5
20rt-6 - 15rt-7 - 15rt-8 - 10rt-9 Yt = 8,400 - 5rt - 5rt-1
5rt-2 - 5rt-2 - 5rt-4 - 10rt-5
15rt-6 - 15rt-7 - 15rt-8 - 20rt-9
Suppose that the Fed can set the interest rate and that for the last 10 quarters, the interest rate has been 4 percent.
Verify that initially real GDP equals 8,000 for both IS curves.
Answer: Since the interest rate has been 4 percent for the last ten quarters, then IS curve I equals 8,800 - 25(4) - 25(r) - 25(r) - 25(4) - 20(r) - 20(4) - 20(4) - 15(4) - 15(4) - 10(4) = 8,000. IS curve II equals 8,400 - 5(4) - 5(4) - 5(4) - 5(4) - …show more content…
Initially the nominal money supply equals $3,000. In addition, suppose that the expectations of firms and workers are rational in the sense defined on p. 547.
Calculate points on the aggregate demand curve when the price level equals 0.8, 1.0, 1.2, 1.25, and 1.5, given the initial value of the nominal money supply.
Answer:
Price Level |0.8 |1.0 |1.2 |1.25 |1.5 | |Real GDP |12,750 |12,000 |11,500 |11,400 |11,000 | |
Suppose that natural real GDP equals $12,000 and that the short-run supply curve is given in the table below, where the price surprise equals P - Pᶱ and Pᶱ is the expected price level:
Price surprise -0.2 0.0 0.2 0.25 0.5
Real GDP 11,900 12,000 12,100 12,125 12,250
Given that the expected price level is initially 1.0, explain why the economy is in long-run equilibrium when the price level equals 1.0 and real GDP equals