Assume That in a Certain Economy the LM Curve Is

question 87

Essay

Assume that in a certain economy the LM curve is given by Y = 2,000r - 2,000 + 2(M/P),and the IS curve is given by Y = 8,000 - 2,000r + u,where u is a shock that is equal to +200 half the time and -200 half the time.The price level (P)is fixed at 1.0.The natural rate of output is 4,000.The government wants to keep output as close as possible to 4,000 and does not care about anything else.Consider the following two policy rules:
i.Set the money supply M equal to 1,000 and keep it there.ii.Manipulate M from day to day to keep the interest rate constant at 2 percent.a.Under rule i,what will Y be when u = +200? What will Y be under rule i when u = -200?
b.Under rule ii,what will Y be when u = +200? What will Y be under rule i,when u = -200?
c.Which rule will keep output closer to 4,000?

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Definitions:

Circularity

A geometric tolerancing term that describes the condition where all points on a circular feature are equidistant from a common center, ensuring roundness.

Ovality

A measurement of deviation from a perfect circle, often used to describe the condition or imperfection in cylindrical objects.

Irregularity

A deviation from the norm or standard, often referring to shapes, patterns, or surfaces that do not follow a regular or predictable form.

Noncylindrical Parts

Noncylindrical parts are components or objects that do not have a uniform circular cross-section along their length.