Macroeconomics Exercises for Chapter 3 and 4 Question 1 (Continued with question 1 in exercise for chapter 3). Suppose instead of given 2000 there is an investment function which takes the form Above, i is the interest rate. Meanwhile there is a demand function for money Md=1.2Y-20000i Assume that the monetary base is equal to 2000 while the required reserve ratio is 1 ). What is the equilibrium level of output Y and interest rate? 2). Is the government financially in deficit or in surplus? Please also calculate the exact number of this deficit or surplus 3). What is the value of multiplier in this case? Question 2 (Continued with question 1)Suppose now there is an add itional government expend iture which is given by 200 1). What is the change in equilibrium output and in interest rate? 2). Does the change in output satisfy the multiplier relation? If not, explain why? 3). To keep the full multiplier effect of this 200 additional expenditure, what the central bank might do is to change its monetary base. Please calculate the exact number of such change in monetary base Question Please explain the monetary transmission mechanism as much detail as possible
Macroeconomics Exercises for Chapter 3 and 4 Question 1 (Continued with question 1 in exercise for chapter 3). Suppose instead of given 2000 there is an investment function which takes the form i I 100 = Above, i is the interest rate. Meanwhile there is a demand function for money: M Y i d = 1.2 − 20000 Assume that the monetary base is equal to 2000 while the required reserve ratio is 20%. 1). What is the equilibrium level of output Y and interest rate? 2). Is the government financially in deficit or in surplus? Please also calculate the exact number of this deficit or surplus. 3). What is the value of multiplier in this case? Question 2 (Continued with question 1) Suppose now there is an additional government expenditure, which is given by 200. 1). What is the change in equilibrium output and in interest rate? 2). Does the change in output satisfy the multiplier relation? If not, explain why? 3). To keep the full multiplier effect of this 200 additional expenditure, what the central bank might do is to change its monetary base. Please calculate the exact number of such change in monetary base. Question 3. Please explain the monetary transmission mechanism as much detail as possible
