Hi i need help with number 4

PDE Macroeconomics (8th Editic PRE Macroeconomics (8th Editic PRE econ assignment.pdf X + V X file:///C:/Users/user/Downloads/econ%20assignment.pdf . . . 3 of 3 O + Fit to page LD Page view A" Read aloud Add notes So 2. A closed economy is described as follows: 4. A closed economy has the following AD and AS Ca = 600 + 0.5(Y-7) -50r curves: Desired consumption Desired investment d = 450 - 50r AD curve Y= 300 + 30(M/P) Real money demand L = 0.5Y = 100i AS curve Y = Y + 10(P + p) Full-employment output Y = 2210 Expected inflation T = 0.05 Here, Y = 500 and M = 400. a. Suppose that p = 60. What are the equilibrium In this economy, the government always has a bal- values of the price level P and output Y? (Hint: anced budget, so T = G, where T is total taxes The solutions for P in this part and in part (b) are collected. multiples of 10.) a. Suppose that M = 4320 and G = 150. Use the clas- b. An unanticipated increase raises the money sup- sical IS-LM model to find the equilibrium values of ply to M = 700. Because the increase is unantici output, the real interest rate, the price level, con- pated, Pe remains at 60. What are the equilibrium sumption, and investment. (Hint: In the classical values of the price level P and output Y? model, output always equals its full-employment c. The Bank of Canada announces that the money level.) supply will be increased to M = 700, which the b. The money supply rises to 4752. Repeat part (a). public believes. Now what are the equilibrium val- Is money neutral? ues of the price level P, the expected price level c. With the money supply back at 4320, government pe, and output Y? purchases and taxes rise to 190. Repeat part (a). 5. Output in an economy is given by the production Assume, for simplicity, that Y is fixed (unaf- function Y= AKO.NO.7, where Y is output, A measures fected by G). Is fiscal policy neutral in this case? productivity, the capital stock K is fixed at 30, and Explain. employment N is fixed at 100. Output equals 100 in 3. Consider the following closed economy: the year 2011 and equals 105 in 2012. Desired consumption Cd = 1275 +0.5(Y-7) - 200r a. Find the Solow residual in the years 2011 and Desired investment 1 = 900 - 2007 2012, and its growth rate between those two years. Real money demand L =0.5Y - 200i b. What is the relationship between the growth in the Full-employment output Y = 4600 Solow residual between 2011 and 2012 and the Expected inflation T= 0 growth in productivity (as measured by the param- eter A) in the same years? Assume that the rates a. Suppose that T'= G = 450 and that M = 9000. Find of utilization of capital and labour remain an equation describing the IS curve. (Hint: Set unchanged. desired national saving and desired investment c. Repeat part (b) under the assumption that utiliza equal, and solve for the relationship between r and tion of labour increases by 3% between 2011 and Y.) Find an equation describing the LM curve. 2012. You will have to modify the production func- (Hint: Set real money supply and real money tion along the lines of Eq. (11.2). demand equal, and again solve for the relationship d. Repeat part (b) under the assumption that the uti- between r and Y, given P.) Finally, find an equa- ization rates of both labour and capital increase tion for the aggregate demand curve. (Hint: Use by 3% between 2011 and 2012. the IS and LM equations to find a relationship 6. Try the following experiment: Flip a coin 50 times, between Y and P.) What are the equilibrium values keeping track of the results. Think of each "heads" of output, consumption, investment, the real inter- as a small positive shock that increases output by est rate, and the price level? Assume that there one unit; similarly, think of each "tails" as a small are no misperceptions about the price level. negative shock that reduces output by one unit. Let b. Suppose that T= G = 450 and that M = 4500. What the initial value of output Y be 50, and graph the is the equation for the aggregate demand curve level of output over time as it is hit by the "positive"