04 Jun Question Economics 576 Macroeconomic Theory and Policy
Question
Economics 576
Macroeconomic Theory and Policy
Spring 2015
Assume the model: And pay attention to the model in answering the questions
Y = C + I + G + X – M
C = a + b Yd where a > 0 and 0 < b < 1 I = f(i) but I ? f(Y) ie, MPI = 0 G = Go Ms = Mso Ms = money supply/stock Tx = Txo ……..meaning that Tx ? f ( Y ) Md = Mt(Y)+ Ml(i) [Mt = transactions demand; Ml = liquidity preference demand] X = Xo X = exports M = Mo + mY where Mois autonomous imports, and m is the marginal propensity to import In each of the following cases, indicate the effect of the given autonomous change (or policy measure) on each of the listed variables. In each case indicate whether the listed variable increases in value, decreases, or does not change. Note: Answer beside the listed variable. For example, if in I an increase in the money supply does not bring about a change interest rates, write “does not change” beside “interest rates” at I, 1. And if an increase in the money supply causes a decrease in the level of income, write “decreases” beside “level of income” at I, 2 I.An increase in the money supply: 1. Interest rates 2. Level of income 3. Imports 4. Investment 5. Government spending II.A decrease in the public’s liquidity preference: 6. Level of income 7. Investment 8. Saving 9. Consumption 10.Exports
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