This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 Name Date last 4 PSU ID Economics 304 Homework Lesson 9 92 pointsInstructions Please show all work or points will be taken off Good luck 1 Consider the following model of the economy where the initial values of A 6 and K 10 The initial conditions in the goods market are as follows G 100T 100The initial conditions in the asset market are as follows L 78 0 5Y 1000 r e Nominal Money supply M 1800Expected inflation is equal to 2 e 0 02 1 a 6 points Solve for the labor market clearing real wage w the profit maximizing level of labor input N and the full employment level of output Y Please show your work MPN 6 10 20 9w Y 6 10 56 56 2 2W 60 20 9wY 3360 1568 W 4Y 1792N 20 9 4 N 56w N Y 14179256 This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 b 10 points Draw two diagrams vertically with the labor market on the bottom graph and the production function on the top graph Be sure to label everything including this initial equilibrium point as point A 10 points for completely labeled and correct diagrams A K LAND 2 This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 c 4 points Derive an expression for the IS curve r in terms of Y Please show all workS Y 100 5 Y 100 500r 100 S Y 100 5Y 50 500r 100 S Y 100 5Y 50 500r 100 5Y 150 500r 800 500r1000r 950 5Yr 95 0005Y IS Equation d 3 points Find the real interest rate that clears the goods market Please show all work r 95 0005 1792 r 95 896 r 054r 3 95 0005Y 054 This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 e 3 points Find the price level needed to clear the money market Please show all work1800 P 78 0 5Y 1000 r 02 1800 P 78 5 1792 1000 054 02 1800 P 78 896 74 P 2P f 4 points Find the expression for the LM curve r in terms of Y Please show all work1800 2 78 0 5Y 1000 r 02 900 78 5Y 1000r 20 1000r 842 5Yr 842 0005Y42r 842 0005Y This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 LM Equation g 40 points Now draw four separate diagrams 40 points total Top left a desired savings equalsdesired investment Sd Id Top right a FE IS LM diagram Bottom left a money market diagram Bottom right An AD AS diagram locating this initial equilibrium point as point A BE SURE to LABEL all diagrams completely 10 points for each correctly drawn and labeled diagram each diagram will have three different equilibriums points A B and C SCENARIO 1 AN LM SHOCK 5 This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 S1 a 4 points The Fed decides to conduct open market sales equal to 50 Assume that banks continue to hold zero excess reserves and the money multiplier is 0 8 Name two other ways the Federal Reserve could change the nominal money supply this way S1 b 6 points What is the new short run fixed price level expression for the LM curve Please show all work M 1760 80 of 50 L M P78 5Y 1000 r 02 1760 21000r 78 5Y 880 201000r 5Y 822r 0 822 0005YLM EquationS1 c 4 points What is the short run Keynesian fixed price level of equilibrium output and real interest rate Please show all work IS LM 95 0005Y 0822 0005YY 11726r 0822 0005Y1 Changes the reserve requirement increase a Changes in the reserve requirement change bank reserves and the monetary base Monetary base interacts with the money multiplier to change the money supply 2 Change the discount rate increase a Changing the discount rate affects targets interest rates which influence borrowing by businesses and consumers therefore changing aggregate demand3 Increase the interest paid on reserves This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 r 0822 0005 1772 r 0 064Y r Please label these new short run conditions to your four diagrams as point B Be sure to label diagrams completely with the inclusion of all the relevant shift variables like we did numerous times in the lesson S1 d 4 points Find the new price level associated with the long run general equilibrium LR Y 1792 and r 054 in the long run78 5 1792 1000 054 02 1760 P78 896 74 1760 P900 1760 PP 1 96P Please label these long run conditions to your four diagrams as point C Be sure to label diagrams completely with the inclusion of all the relevant shift variables like we did numerous times in the lesson S1 e 4 points Let us focus on the movement from point A to B the short run in your money market diagram Explain why and in what direction the real interest rate had to change to clear the money market Be as specific as possible as we talked about this a great deal in our video lectures 717720 0641 96At the same real interest rate the money market is no longer clearing In particular money demand is greater than money supply r 054 Households will start selling their non monetary assets bonds causing their price to fall and their yield i to rise Holding ne constant if the nominal interest rate increases the real interest rate must increase to clear the market Fisher equation This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 32 53 GMT 06 00 https www coursehero com file 14981608 Lesson 9 2 Powered by TCPDF www tcpdf org 8