8/12/2019 Monetary Economics 2 2014 Homework 01
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FEB UnilaCourseonMonetary Economics 2
Homework 01
Dr. Yoke Muelgini, M.c
1. First, define the LM curve. Second, explain why it has its
particular shape.
2. Explain the determinants of investment. Include in your
answer an explanation ofhow a chane in each determinant affects
investment.
!. "hen the central #an$ pursues contractionary monetary policy,
we that this policywill result in an increase in the interest rate,
a reduction in investment, a reduction in
demand, and a lower level of e%uili#rium output. Explain what
happens to the positionof the IS curve as the central #an$ pursues
contractionary monetary policy.
&. ' fiscal expansion (e.. a tax cut) will result in an
increase in income, an increase inmoney demand, and an increase in
the e%uili#rium interest rate in financial mar$ets.Explain what
happens to the position of the LM curve as policy ma$ers
pursueexpansionary fiscal policy.
*. Explain in detail what effect a Fed sale of #onds will have
on+ (1) the LM curve and(2) the IS curve.
-. Explain in detail what effect a reduction in overnment
spendin will have on+ (1)the LM curve and (2) the IS curve.
. /ased on your understandin of the IS0LM model, raphically
illustrate and explainwhat effect a reduction in consumer
confidence will have on output, the interest rate,and investment..
/ased on your understandin of the IS0LM model, raphically
illustrate and explainwhat effect a monetary expansion will have on
output, the interest rate, and investment.
. Increases in the #udet deficit are #elieved to cause
reductions in investment. /asedon your understandin of the IS0LM
model, will a fiscal policy action that causes areductionin the
#udet deficit cause an increase in investment3 Explain.
14. First, #riefly explain what is meant #y the policy mix.
Second, explain what effectdifferent policy mixes miht have on the
level of output, investment, and the interest
rate.
11. 5se the IS0LM model to answer this %uestion. Suppose there
is a simultaneousincrease in overnment spendin and reduction in the
money supply. Explain whateffect this particular policy mix will
have on output and the interest rate. /ased onyour analysis, do we
$now with certainty what effect this policy mix will have on
678 9o$e Muelini, M.Sc. Economics 7evelopment 7epartment,Faculty
of Economics and /usiness, :he 5niversity of Lampun, Even Semester
241&
8/12/2019 Monetary Economics 2 2014 Homework 01
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investment3 Explain.
12. 5se the IS0LM model to answer this %uestion. Suppose there
is a simultaneous
increase in taxes and reduction in the money supply. Explain
what effect this particularpolicy mix will have on output and the
interest rate. /ased on your analysis, do we$now with certainty
what effect this policy mix will have on investment3 Explain.
678 9o$e Muelini, M.Sc. Economics 7evelopment 7epartment,Faculty
of Economics and /usiness, :he 5niversity of Lampun, Even Semester
241&
