ECON 2000 Chapter Notes - Chapter 10: Real Interest Rate, Aggregate Demand, Phillips Curve

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10 Dec 2016

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10. 1 explain how the is curve represents the relationship between the real interest. Explaining aggregate demand: the is-mp model rate and aggregate expenditure. Is curve, represents equilibrium in the mark for goods and services. Mp curve, represents bank of canada policy. Phillips curve, represents short run relationship between output gap or the unemployment rate and the inflation rate. 10. 1. 1 is curve and equilibrium in the goods market. Is curve shows the combinations of the real interest rate and output such that the goods market is in equilibrium. When goods market is in equilibrium, aggregate expenditure equals real gdp or investment = savings. Ae = c + i + g + nx net exports. period: aggregate expenditure = consumption + investment + government expenditure + The goods market is all final goods and services that the economy produces during a. When ae = y (real gdp), equilibrium occurs in the goods market.

Related Questions

How does the policy rate hitting a floor of zero lead to an upward sloping aggregate demand curve?

A.When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward-sloping AD

B.When the policy rate hits a floor of the zero, the negative relationship between planned spending and the real interest rate embodied by the IS curve becomes positive, and this reversal results in lower inflation producing a lower real interest rate, and hence lower planned spending, i.e., an upward-sloping AD curve.

C.When the policy rate hits a floor of the zero, the negative relationship between inflation and the real interest rate embodied by the MPcurve becomes positive, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward-sloping AD curve.

D.When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in higher inflation producing a higher real interest rate and hence a lower planned spending i.e. an upward-sloping AD curve.

raspberrymule870

1. For a closed economy, the IS curve describes short-run movements in an economy via which of the following?

a. Interest rate Investment Output
b. Interest rate Investment Output
c. Tax rate Consumption Output
d. Interest rate Investment Output
e. Tax rate Government expenditure Output

2. A key difference between the long run and short-run models is the assumption _____________ in the short run

a. of zero inflation
b. of perfect price flexibility
c. that unemployment always equals its natural rate
d. that the economy never deviates from its long-run equilibrium
e. of sticky inflation (inflexible prices)

3. If prices are sticky and the Fed raises the nominal interest rate (ceteris paribus), __________ and __________ in the short run.

a. the real interest rate remains constant; real output remains at potential
b. the real interest rate falls; short-run real output falls
c. the unemployment rate rises; short-run real output rises
d. the real interest rate rises; short-run real output falls
e. the real interest rate falls; current real output falls

4. According to the Phillips curve, if the current output is above potential output (a boom),

a. inflation rises.
b. inflation falls.
c. unemployment rises.
d. inflation is constant.
e. prices fall.

5. According to the Phillips curve, in general during a recession

a. inflation rises.
b. prices fall.
c. unemployment falls.
d. inflation is constant.
e. inflation falls.

peachcod553

C = 1275 + 0.5(Y-T) â 200r

I = 900 â 200r

Real Money demand, L = 0.5Y â 200i

Expected inflation, ? = 0

Full employment output, = 4600

a.) Suppose that T = G = 450 and M = 9000

Find an equation describing the IS curve

Find an equation describing the LM curve

Find an equation for the aggregate demand curve (Hint: Use IS and LM equations to find a relationship between Y and P)

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

b) Suppose M = 4500, T and G remain the same.

What is the equation for the aggregate demand curve?

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

c.) Suppose T = G = 330 and M = 9000

What is the equation for the aggregate demand curve?

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

orchidsardine515

ECON 2000 Chapter Notes - Chapter 10: Real Interest Rate, Aggregate Demand, Phillips Curve

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