22 Jul HOW MANY QUARTERS DOES IT TAKE FOR THE INCREASE IN REAL GDP TO EQUAL ONE-HALF OF THE TOTAL INCREASE?
You are given the following two IS curves that show how real GDP (Y1) in the current time period Show more You are given the following two IS curves that show how real GDP (Y1) 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. 1. Yt= 8800-25Rt-25Rt-t 25Rt-2 25Rt-3 20Rt-4 20Rt-5 20Rt-6 15Rt-7 15Rt-8 10Rt-9 2. Yt= 8400 5Rt 5Rt-1 5Rt-2 5Rt-3 5Rt-4 10Rt-5 15Rt-6 15Rt-7 15Rt-8 20Rt-9 Suppose that the Fed can set interest rate and that for the last 10 quarters the interest rate has been 4 percent. A. Verify that initially real GDP equals 8000 for both IS curves. B. Suppose that the fed lowers the interest rate to 3 percent and keeps it there for the next 10 quarters. Calculate real GDP for the next 10 quarters for each IS curve C. For each IS curve what is the total increase in real GDP? D. For each IS curve How many quarters does it take for the increase in real GDP to equal one-half of the total increase? E. Using figures 14-2 explain which one of the IS curves resemble the economys response to a as much stimulus to the economy in 2010 as implied by the Taylor Rule. Show less
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