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During the Great Recession of 2007-2009, the demand for bonds issued by corporations fell as investors became concerned that the companies would not be able
During the Great Recession of 2007-2009, the demand for bonds issued by corporations fell as investors became concerned that the companies would not be able to pay off their bonds. At the same time, the demand for U.S. Treasury securities increased because investors viewed them as safer investments. The table below reports the prices of one-year bonds/securities with a face value of $10,000 in 2007 and 2009. Price in 2007 Price in 2009 $9,434 $8,475 Corporation bonds U.S. Treasuries $9,524 ? 1. Please calculate the interest rate on corporation bonds for both 2007 and 2009? Please show your work. 2. Please calculate the interest rate on U.S. Treasuries in 2007. What was the price of the U.S. Treasury securities in 2009 if the interest rate on the U.S. securities fell by 2 percentage points between 2007 and 2009 (the two interest rates differ by 2%, e.g. fell from 7% to 5%, etc.)? Please show your work. Price level 70 80 90 100 110 120 130 140 Real GDP Real GDP demanded (billions of 2009 supplied (billions dollars) of 2009 dollars) 825 375 750 450 675 525 600 600 525 675 450 750 375 825 300 900 The table above shows Purpleland's economy aggregate demand and supply schedules. Purpleland's potential GDP is $525 billion. 1. In a short-run equilibrium, which is the value of real GDP and price level in Purpleland? 2. What is the value of the long-run equilibrium real GDP? 3. Is Purpleland's short-run equilibrium a full-employment equilibrium, below full-employment equilibrium, or above full-employment equilibrium? At this short-run equilibrium, does Purpleland have an output gap, if any, which type, a recessionary gap or an inflationary gap, and how much is this gap? Please briefly explain. 4. Suppose aggregate demand decreases by $150 billion (hint: AD shifts by $150 billion horizontally.) What are the new equilibrium real GDP and the price level in the short run? 5. Is Purpleland's new short-run macroeconomic equilibrium a full-employment equilibrium, below full- employment equilibrium, or above full-employment equilibrium? At this new short-run equilibrium, does Purpleland have an output gap, if any, which type, a recessionary gap or an inflationary gap, and how much is this gap
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