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Instructions (PLEASE READ THIS FIRST)
Refer to the book material “Olivier Blanchard, Macroeconomics. 6th or 7th edition. Pearson”.
. Please submit your answers typed in Word or PDF format.
Please type your answers using at least 11pt. Cambria font. Please draw the graphs by hand or using graphical tools in Word or Excel.
Try to keep your answers to a maximum of ½ letter size page.
Please include a short list of references/ bibliography for all the resources you have used to complete this problem set. For example, Chapter No., name of book or article, etc. Include this as the last page of your document.[10 points] Using the model from Chapter 3, discuss and explain what effect a reduction in the marginal propensity to consume has on the size of the multiplier and on equilibrium output.
[10 points] Using the model from Chapter 3, graphically illustrate the effects of an increase in autonomous consumption on the demand line (ZZ). Clearly indicate in your graph the initial and final equilibrium levels of
output.
[10 points] Graphically illustrate and explain what effect a purchase of bonds by the Federal Reserve will have on the money market.
[10 points] Based on your understanding of the IS-LM model, graphically illustrate and explain what effect a monetary expansion will have on output, the interest rate, and investment.
[10 points] Based on the IS-LM mode, suppose there is a simultaneous increase in taxes and a reduction in the money supply. Graphically illustrate and explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment?
[10 points] Graphically illustrate (using the WS and PS relations) and explain the effects of a reduction in the markup on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output
[10 points] Explain what the Aggregate Demand curve represents and why it is downward sloping.
[15 points] Based on your understanding of the Aggregate Supply and Aggregate Demand model and the IS-LM model, graphically illustrate and explain what effect an increase in the money supply will have on the economy. In your graphs, clearly illustrate the short-run and medium-run equilibria.
[15 points] Based on your understanding of the Aggregate Supply and Aggregate Demand model and the IS-LM model, graphically illustrate and explain what effect a tax increase will have on the economy. In your graphs, clearly illustrate the short-run and medium-run equilibria.
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