Expansionary monetary policy cause crowding

Expansionary monetary policy cause crowding

Subject: General Questions / General General Questions
Question
1. Will expansionary monetary policy cause crowding out of investment in a large
country in a global economy with flexible exchange rates? Will expansionary
monetary policy cause crowding out of investment in a large country in a global
economy with fixed exchange rates? Answer both questions using diagrams. 2. All other things remaining equal, which of the following changes would cause the
AD curve to become steeper? To become flatter?
a) an increase in the interest-rate responsiveness of autonomous consumption
b) an increase in the interest-rate responsiveness of real money demand
c) an increase in the marginal tax rate
d) an increase in the marginal propensity to import
e) an increase in the income responsiveness of real money demand
All other things remaining equal, which of the following changes would cause the
AD curve to move to the right? To the left? Leave it unchanged?
f) an increase in autonomous net exports (NXa)
g) an increase in the nominal money supply
h) a decrease in business confidence
i) an increase in autonomous taxes
j) an increase in the interest rate 3. Explain with words and diagrams how each of the following events affects the SAS
curve.
(a) the technology improves
(b) the nominal wage rate increases
(c) the quantity of non-labor inputs declines 4. Predict, with the aid of the IS-LM and the AS-AD models, the short-run and longrun effects of an increase in the money supply. 5. The IS and LM curves for the economy have the following equations:
IS : r ( Ap / 40) (1/(40k ))Y
LM : r 0.01Y 0.01M s / P
where k 2.5, Ap 2, 000, M s 3, 200, and P 0.8 .
(a) Find the equilibrium level of real output and the equilibrium interest rate.
(b) What is the equilibrium real output when the price level equals 1.0? When it
is 1.2? Plot the aggregate demand curve based on your answers to parts (a) and
(b).