10宏观经济学英文版多恩布什课后习题答案全解.docx

1、10宏观经济学英文版多恩布什课后习题答案全解 CHAPTER 10 MONEY, INTEREST, AND INCOMEAnswers to Problems in the Textbook:Conceptual Problems:1. The model in Chapter 9 assumed that both the price level and the interest rate were fixed. But the IS-LM model lets the interest rate fluctuate and determines the combination of ou

2、tput demanded and the interest rate for a fixed price level. It should be noted that while the upward-sloping AD-curve in Chapter 9 (the C+I+G+NX-line in the Keynesian cross diagram) assumed that interest rates and prices were fixed, the downward-sloping AD-curve that is derived at the end of Chapte

3、r 10 from the IS-LM model lets the price level fluctuate and describes all combinations of the price level and the level of output demanded at which the goods and money sector simultaneously are in equilibrium. 2.a. If the expenditure multiplier () becomes larger, the increase in equilibrium income

4、caused by a unit change in intended spending also becomes larger. Assume investment spending increases due to a change in the interest rate. If the multiplier becomes larger, any increase in spending will cause a larger increase in equilibrium income. This means that the IS-curve will become flatter

5、 as the size of the expenditure multiplier becomes larger.If aggregate demand becomes more sensitive to interest rates, any change in the interest rate causes the C+I+G+NX-line to shift up by a larger amount and, given a certain size of the expenditure multiplier , this will increase equilibrium inc

6、ome by a larger amount. As a result, the IS-curve will become flatter.2.b. Monetary policy changes affect interest rates and this leads to a change in intended spending, which is reflected in a change in income. In 2.a. it was explained that a steep IS-curve means either that the multiplier is small

7、 or that desired spending is not very interest sensitive. Therefore, an increase in money supply will reduce interest rates. However, this does not result in a large increase in aggregate demand if spending is very interest insensitive. Similarly, if the multiplier is small, then any change in spend

8、ing will not affect output significantly. Therefore, the steeper the IS-curve, the weaker the effect of monetary policy changes on equilibrium output.3. Assume that money supply is fixed. Any increase in income will increase money demand and the resulting excess demand for money will drive the inter

9、est rate up. This, in turn, will reduce the quantity of money balances demanded to bring the money sector back to equilibrium. But if money demand is very interest insensitive, then a larger increase in the interest rate is needed to reach a new equilibrium in the money sector. As a result, the LM-c

10、urve becomes steeper. Along the LM-curve, an increase in the interest rate is always associated with an increase in income. This means that an increase in money demand (due to an increase in income) has to be offset by a decrease in the quantity of money demanded (due to an increase in the interest

11、rate) to keep the money sector in equilibrium. But if money demand becomes more income sensitive, a smaller change in income is required for any specific change in the interest rate to keep the money sector in equilibrium. Therefore, the LM-curve becomes steeper as money demand becomes more income s

12、ensitive. 4.a. A horizontal LM-curve implies that the public is willing to hold whatever money is supplied at any given interest rate. Therefore, changes in income will not affect the equilibrium interest rate in the money sector. But if the interest rate is fixed, we are back to the analysis of the

13、 simple Keynesian model used in Chapter 9. In other words, there is no offsetting effect (or crowding-out effect) to fiscal policy. 4.b. A horizontal LM-curve implies that changes in income do not affect interest rates in the money sector. Therefore, if expansionary fiscal policy is implemented, the

14、 IS-curve shifts to the right, but the level of investment spending is no longer negatively affected by rising interest rates, that is, there is no crowding-out effect. In terms of Figure 10-3, the interest rate not longer serves as the link between the goods and assets markets.4.c. A horizontal LM-

15、curve results if the public is willing to hold whatever money balances are supplied at a given interest rate. This situation is called the liquidity trap. Similarly, if the Fed is prepared to peg the interest rate at a certain level, then any change in income will be accompanied by an appropriate ch

16、ange in money supply. This will lead to continuous shifts in the LM-curve, which is equivalent to having a horizontal LM-curve, since the interest rate will never change.5. From the material presented in the text we know that when intended spending becomes more interest sensitive, then the IS-curve

17、becomes flatter. Now assume that an increase in the interest rate stimulates saving and therefore reduces the level of consumption. This means that now not only investment spending but also consumption is negatively affected by an increase in the interest rate. In other words, the C+I+G+NX-line in t

18、he Keynesian cross diagram will now shift down further than previously and the level of equilibrium income will decrease more than before. In other words, the IS-curve has become flatter. This can also be shown algebraically, since we can now write the consumption function as follows: C = C* + cYD -

19、 gi In a simple model of the expenditure sector without income taxes, the equation for aggregate demand will now be AD = Ao + cY - (b + g)i. From Y = AD = Y = 1/(1 - c)Ao - (b + g)i = i = 1/(b + g)Ao - (1 - c)/(b + g)Y Therefore, the slope of the IS-curve has been reduced from (1 - c)/b to (1 - c)/(

20、b + g).6. In the IS-LM model, a simultaneous decline in interest rates and income can only be caused by a shift of the IS-curve to the left. This shift in the IS-curve could have been caused by a decrease in private spending due to negative business expectations or a decline in consumer confidence.

21、In 1991, the economy was in a recession and firms did not want to invest in new machinery and, since consumer confidence was very low, people were not expected to increase their level of spending. In the IS-LM diagram the adjustment process can be described as follows:Io = Y (the IS-curve shifts lef

22、t) = md = i = I = Y . Effect: Y and i . i ISo LM IS1 i1 i2 0 Y2 Y1 YTechnical Problems:1.a. Each point on the IS-curve represents an equilibrium in the expenditure sector. Therefore the IS-curve can be derived by settingY = C + I + G = (0.8)1 - (0.25)Y + 900 - 50i + 800 = 1,700 + (0.6)Y - 50i = (0.4

23、)Y = 1,700 - 50i = Y = (2.5)(1,700 - 50i) = Y = 4,250 - 125i.1.b. The IS-curve shows all combinations of the interest rate and the level of output such that the expenditure sector (the goods market) is in equilibrium, that is, intended spending is equal to actual output. A decrease in the interest r

24、ate stimulates investment spending, making intended spending greater than actual output. The resulting unintended inventory decrease leads firms to increase their production to the point where actual output is again equal to intended spending. This means that the IS-curve is downward sloping.1.c. Ea

25、ch point on the LM-curve represents an equilibrium in the money sector. Therefore the LM-curve can be derived by setting real money supply equal to real money demand, that is, M/P = L = 500 = (0.25)Y - 62.5i = Y = 4(500 + 62.5i) = Y = 2,000 + 250i.1.d. The LM-curve shows all combinations of the inte

26、rest rate and level of output such that the money sector is in equilibrium, that is, the demand for real money balances is equal to the supply of real money balances. An increase in income will increase the demand for real money balances. Given a fixed real money supply, this will lead to an increas

27、e in interest rates, which will then reduce the quantity of real money balances demanded until the money market clears. In other words, the LM-curve is upward sloping.1.e. The level of income (Y) and the interest rate (i) at the equilibrium are determined by the intersection of the IS-curve with the

28、 LM-curve. At this point, the expenditure sector and the money sector are both in equilibrium simultaneously. From IS = LM = 4,250 - 125i = 2,000 + 250i = 2,250 = 375I = i = 6 = Y = 4,250 - 125*6 = 4,250 - 750 = Y = 3,500 Check: Y = 2,000 + 250*6 = 2,000 + 1,500 = 3,500 i 125 IS LM 6 0 2,000 3,500 4

29、,250 Y2.a. As we have seen in 1.a., the value of the expenditure multiplier is = 2.5. This multiplier is derived in the same way as in Chapter 9. But now intended spending also depends on the interest rate, so we no longer have Y = Ao, but rather Y = (Ao - bi) = (1/1 - c + ct)(Ao - bi) = Y = (2.5)(1

30、,700 - 50i) = 4,250 - 125i.2.b.This can be answered most easily with a numerical example. Assume that government purchases increase by G = 300. The IS-curve shifts parallel to the right by= IS = (2.5)(300) = 750.Therefore IS: Y = 5,000 - 125iFrom IS = LM = 5,000 - 125i = 2,000 + 250i = 375i = 3,000

31、= i = 8 = Y = 2,000 + 250*8 = Y = 4,000 = Y = 500When interest rates are assumed to be constant, the size of the multiplier is equal to = 2.5, that is, (Y)/(G) = 750/300 = 2.5. But when interest rates are allowed to vary, the size of the multiplier is reduced to 1 = (Y)/(G) = 500/300 = 1.67.2.c. Sin

32、ce an increase in government purchases by G = 300 causes a change in the interest rate of 2 percentage points, government spending has to change by G = 150 to increase the interest rate by 1 percentage point.2.d. The simple multiplier in 2.a. shows the magnitude of the horizontal shift in the IS-curve, given a change in autonomous spending by one unit. But an increase in income increases money demand and