wing92518 2013-11-30 04:33 PM
An open economy has the following expenditureand money demand.
(1)Derive the aggregate demand(AD) curve algebraically and depict it on (Y,P) plane.
Explain the determinants of the location of AD curve
(2)Suppose from now on the domestic price level is fixed at 1.What are the output,interest raste,consumption,investment and net export in the short run equilibrium?
What is money supply.Using figure(s).describe the short run equilibrium.
(3)Suppose government expenditure increases from 1000 to 1300.What are the output,interest rate,consumption,investment and net export in the short run equilibrium>What is the money supp;u.What is the government expenditure multiplier?Complare the multiplier with the oue in Keynesian cross and explain why there is a difference
Now suppose the aggregate supply is given as follows Y=10000+1000(P-P_e)
where P_e is expected price level.
The expected price level is given as 2 initially.
(7)What is the output in medium run equilibrium?What is the equilibrium output and price level in the short run?
(8)Now the government uses its expenditure to move the economy from the short run to medium run equilibrium run equilibrium.How much has government expenditure to be increased to achieve the goal?Using figure(s)Of AD-AS/IS-LM.awnalyze the policy effect.