monetary policy to implement in this economy.

/in /by

ECO347-61

Homework 7

 

Due: Tuesday, June 23, 11:55 PM

 

Instructions:

  1. NEATLY hand-write or type all your responses below each question.
  2. Make sure to label all graphs (if any) neatly and completely.
  3. Upload your completed homework.
  4. No late homework will be accepted without a valid documented excuse.
  5. Remember that there are significant penalties for academic dishonesty.

 

 

 

Grading:

Your submission will be graded based on accuracy, conciseness, and presentation (neatness).

 

Note: Your lecture notes, chapter 11 and 12 of the text, and a bit of research should allow you to complete this homework satisfactorily.

 

 

PLEASE INCLUDE THIS FRONT PAGE IN YOUR SUBMISSION

 

 

 

LAST NAME                                                                        FIRST NAME

 

 

___________________________________                 ___________________________________

 

 

 

 

 

Section 1: The 15 MCQs in LaunchPad value a total of                       4,500 pts.

Section 2: There are 2 short-answer questions, valuing a total of   4,500 pts.

 

Make sure to label all graphs neatly and completely. Graphs may be neatly hand-drawn.

 

 

 

 

 

 

 

 

 

QUESTION 1

Suppose the Petrick-Havlicek economy can be described by the following equations and values:

 

 

,

 

; , and the nominal money supply is 1,600.

 

(Please note these values and equation corresponds exactly to the initial values and equations in questions 1 and 2 from HW6)

 

  1. Solve for the equation for the AD curve, and then neatly sketch this curve below (call it AD1).
    1. Be sure to label the diagram fully and
    2. Depict the point on AD1 where the Petrick-Havlicek economy is currently operating. (Consider this as point A)

 

  1. Choose one monetary policy to implement in this economy.
    1. State your monetary policy of choice.
    2. State the goal of this monetary policy.
  • Solve for the new equation for the AD curve (call it AD2).
  1. Neatly sketch AD2 on your diagram above (on page 2).

 

  1. Choose one fiscal policy to implement in this economy. (Make sure to ignore your calculation from part b of this question)
    1. State your fiscal policy of choice.
    2. State the goal of this fiscal policy.
  • Solve for the new equation for the AD curve (call it AD3).
  1. Neatly sketch AD3 on your diagram above (on page 4).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QUESTION 2

Suppose the BreeZa economy can be described by the following equations and values:

 

 

,          ,

 

In constructing the model, we assumed that the tax, , was independent of income. Suppose instead that the taxes for the BreeZa economy has a fixed component and a proportional component and takes the form

 

  1. Solve for the equation for the IS curve for BreeZa economy. Show at least three lines of derivation.

 

  1. Calculate the government purchases multiplier for BreeZa economy.

 

  1. Calculate the tax multiplier for BreeZa economy.