经济学原理答案34.docx

经济学原理答案34.docx

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经济学原理答案34

经济学原理答案34

QuickQuizzes

1.Accordingtothetheoryofliquiditypreference,theinterestrateadjuststobalancethesupplyanddemandformoney.Therefore,adecreaseinthemoneysupplywillincreasetheequilibriuminterestrate.Thisdecreaseinthemoneysupplyreducesaggregatedemandbecausethehigherinterestratecauseshouseholdstobuyfewerhouses,reducingthedemandforresidentialinvestment,andcausesfirmstospendlessonnewfactoriesandnewequipment,reducingbusinessinvestment.

2.Ifthegovernmentreducesspendingonhighwayconstructionby$10billion,theaggregate-demandcurveshiftstotheleftbecausegovernmentpurchasesarelower.Theshifttotheleftoftheaggregate-demandcurvecouldbemorethan$10billionifthemultipliereffectoutweighsthecrowding-outeffect,oritcouldbelessthan$10billionifthecrowding-outeffectoutweighsthemultipliereffect.

3.Ifpeoplebecomepessimisticaboutthefuture,theywillspendless,causingtheaggregate-demandcurvetoshifttotheleft.IftheFedwantstostabilizeaggregatedemand,itshouldincreasethemoneysupply.Theincreaseinthemoneysupplywillcausetheinterestratetodecline,thusstimulatingresidentialandbusinessinvestment.TheFedmightchoosenottodothisbecausebythetimethepolicyactiontakeseffect,thelonglagtimemightmeantheeconomywouldhaverecoveredonitsown,andtheincreaseinthemoneysupplywillcauseinflation.

QuestionsforReview

1.ThetheoryofliquiditypreferenceisKeynes'stheoryofhowtheinterestrateisdetermined.Accordingtothetheory,theaggregate-demandcurveslopesdownwardbecause:

（1）ahigherpricelevelraisesmoneydemand;

（2）highermoneydemandleadstoahigherinterestrate;and（3）ahigherinterestratereducesthequantityofgoodsandservicesdemanded.Thus,thepricelevelhasanegativerelationshipwiththequantityofgoodsandservicesdemanded.

2.Adecreaseinthemoneysupplyshiftsthemoney-supplycurvetotheleft.Theequilibriuminterestratewillrise.Thehigherinterestratereducesconsumptionandinvestment,soaggregatedemandfalls.Thus,theaggregate-demandcurveshiftstotheleft.

3.Ifthegovernmentspends$3billiontobuypolicecars,aggregatedemandmightincreasebymorethan$3billionbecauseofthemultipliereffectonaggregatedemand.Aggregatedemandmightincreasebylessthan$3billionbecauseofthecrowding-outeffectonaggregatedemand.

4.Ifpessimismsweepsthecountry,householdsreduceconsumptionspendingandfirmsreduceinvestment,soaggregatedemandfalls.IftheFedwantstostabilizeaggregatedemand,itmustincreasethemoneysupply,reducingtheinterestrate,whichwillinducehouseholdstosavelessandspendmoreandwillencouragefirmstoinvestmore,bothofwhichwillincreaseaggregatedemand.IftheFeddoesnotincreasethemoneysupply,Congresscouldincreasegovernmentpurchasesorreducetaxestoincreaseaggregatedemand.

5.Governmentpoliciesthatactasautomaticstabilizersincludethetaxsystemandgovernmentspendingthroughtheunemployment-benefitsystem.Thetaxsystemactsasanautomaticstabilizerbecausewhenincomesarehigh,peoplepaymoreintaxes,sotheycannotspendasmuch.Whenincomesarelow,soaretaxes;thus,peoplecanspendmore.Theresultisthatspendingispartlystabilized.Governmentspendingthroughtheunemployment-benefitsystemactsasanautomaticstabilizerbecauseinrecessionsthegovernmenttransfersmoneytotheunemployedsotheirincomesdonotfallasmuchandthustheirspendingwillnotfallasmuch.

ProblemsandApplications

1.a.WhentheFed’sbondtradersbuybondsinopen-marketoperations,themoney-supplycurveshiftstotherightfromMS1toMS2,asshowninFigure1.Theresultisadeclineintheinterestrate.

Figure1Figure2

b.Whenanincreaseincreditcardavailabilityreducesthecashpeoplehold,themoney-demandcurveshiftstotheleftfromMD1toMD2,asshowninFigure2.Theresultisadeclineintheinterestrate.

c.WhentheFederalReservereducesreserverequirements,themoneysupplyincreases,sothemoney-supplycurveshiftstotherightfromMS1toMS2,asshowninFigure1.Theresultisadeclineintheinterestrate.

d.Whenhouseholdsdecidetoholdmoremoneytouseforholidayshopping,themoney-demandcurveshiftstotherightfromMD1toMD2,asshowninFigure3.Theresultisariseintheinterestrate.

Figure3

e.Whenawaveofoptimismboostsbusinessinvestmentandexpandsaggregatedemand,moneydemandincreasesfromMD1toMD2inFigure3.Theincreaseinmoneydemandincreasestheinterestrate.

Figure4

2.a.Theincreaseinthemoneysupplywillcausetheequilibriuminterestratetodecline,asshowninFigure4.Householdswillincreasespendingandwillinvestinmorenewhousing.Firmstoowillincreaseinvestmentspending.ThiswillcausetheaggregatedemandcurvetoshifttotherightasshowninFigure5.

Figure5

b.AsshowninFigure5,theincreaseinaggregatedemandwillcauseanincreaseinbothoutputandthepricelevelintheshortrun（pointB）.

c.Whentheeconomymakesthetransitionfromitsshort-runequilibriumtoitslong-runequilibrium,short-runaggregatesupplywilldecline,causingthepriceleveltoriseevenfurther（pointC）.

d.Theincreaseinthepricelevelwillcauseanincreaseinthedemandformoney,raisingtheequilibriuminterestrate.

e.Yes.Whileoutputinitiallyrisesbecauseoftheincreaseinaggregatedemand,itwillfallonceshort-runaggregatesupplydeclines.Thus,thereisnolong-runeffectoftheincreaseinthemoneysupplyonrealoutput.

Figure6

3.a.WhenfewerATMsareavailable,moneydemandisincreasedandthemoney-demandcurveshiftstotherightfromMD1toMD2,asshowninFigure6.IftheFeddoesnotchangethemoneysupply,whichisatMS1,theinterestratewillrisefromr1tor2.Theincreaseintheinterestrateshiftstheaggregate-demandcurvetotheleft,asconsumptionandinvestmentfall.

b.IftheFedwantstostabilizeaggregatedemand,itshouldincreasethemoneysupplytoMS2,sotheinterestratewillremainatr1andaggregatedemandwillnotchange.

c.Toincreasethemoneysupplyusingopenmarketoperations,theFedshouldbuygovernmentbonds.

4.Ataxcutthatispermanentwillhaveabiggerimpactonconsumerspendingandaggregatedemand.Ifthetaxcutispermanent,consumerswillviewitasaddingsubstantiallytotheirfinancialresources,andtheywillincreasetheirspendingsubstantially.Ifthetaxcutistemporary,consumerswillviewitasaddingjustalittletotheirfinancialresources,sotheywillnotincreasespendingasmuch.

5.a.ThecurrentsituationisshowninFigure7.

Figure7

b.TheFedwillwanttostimulateaggregatedemand.Thus,itwillneedtolowertheinterestratebyincreasingthemoneysupply.ThiscouldbeachievediftheFedpurchasesgovernmentbondsfromthepublic.

Figure8

c.AsshowninFigure8,theFed'spurchaseofgovernmentbondsshiftsthesupplyofmoneytotheright,loweringtheinterestrate.

d.TheFed'spurchaseofgovernmentbondswillincreaseaggregatedemandasconsumersandfirmsrespondtolowerinterestrates.OutputandthepricelevelwillriseasshowninFigure9.

Figure9

6.a.Legislationallowingbankstopayinterestoncheckingdepositsincreasesthereturntomoneyrelativetootherfinancialassets,thusincreasingmoneydemand.

b.Ifthemoneysupplyremainedconstant（atMS1）,theincreaseinthedemandformoneywouldhaveraisedtheinterestrate,asshowninFigure10.Theriseintheinterestratewouldhavereducedconsumptionandinvestment,thusreducingaggregatedemandandoutput.

c.Tomaintainaconstantinterestrate,theFedwouldneedtoincreasethemoneysupplyfromMS1toMS2.Thenaggregatedemandandoutputwouldbeunaffected.

Figure10

7.a.Ifthereisnocrowdingout,thenthemultiplierequals1/（1–MPC）.Becausethemultiplieris3,thenMPC=2/3.

b.Ifthereiscrowdingout,thentheMPCwouldbelargerthan2/3.AnMPCthatislargerthan2/3wouldleadtoalargermultiplierthan3,whichisthenreduceddownto3bythecrowding-outeffect.

8.a.Theinitialeffectofthetaxreductionof$20billionistoincreaseaggregatedemandby$20billion×3/4（theMPC）=$15billion.

b.Additionaleffectsfollowthisinitialeffectastheaddedincomesarespent.Thesecondroundleadstoincreasedconsumptionspendingof$15billion×3/4=$11.25billion.Thethirdroundgivesanincreaseinconsumptionof$11.25billion×3/4=$8.44billion.Theeffectscontinueindefinitely.Addingthemallupgivesatotaleffectthatdependsonthemultiplier.WithanMPCof3/4,themultiplieris1/（1–3/4）=4.Sothetotaleffectis$15billion×4=$60billion.

c.Governmentpurchaseshaveaninitialeffectofthefull$20billion,becausetheyincreaseaggregatedemanddirectlybythatamount.Thetotaleffectofanincreaseingovernmentpurchasesisthus$20billion×4=$80billion.Sogovernmentpurchasesleadtoabiggereffectonoutputthanataxcutdoes.Thedifferencearisesbecausegovernmentpurchasesaffectaggregatedemandbythefullamount,butataxcutispartlysavedbyconsumers,andthereforedoesnotleadtoasmuchofanincreaseinaggregatedemand.

d.Thegovernmentcouldincreasetaxesbythesameamountitincreasesitspurchases.

9.Ifthemarginalpropensitytoconsumeis0.8,thespendingmultiplierwillbe1/（1–0.8）=5.Therefore,thegovernmentwouldhavetoincreasespendingby$400/5=$80billiontoclosetherecessionarygap.

10.Ifgovernmentspendingincreases,aggregatedemandrises,somoneydemandrises.Theincreaseinmoneyd