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FA25 ECON 302 002 Final Exam

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Using the IS curve 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) , in the long run, 𝑎 ¯ [ Select ] equals 0 equals 1 and 𝑅 𝑡 [ Select ] > < = 𝑟 ¯ , so that [ Select ] the economy's actual output equals potential output. the economy is in a boom the economy is in a recession .

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Step-by-Step Analysis

To analyze the IS curve expression, we need to substitute the long-run conditions. Option by option, here is how each piece fits together: - The first blank corresponds to a_bar in the long-run equation; in the long run, autonomous demand shifts that affect the output gap vanish, so a_bar = 0. This means the intercept of the IS relation at potential output is zero, aligning with the idea that deviations from potential are eliminated in the long run. ......Login to view full explanation

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Consider the IS curve 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) + 𝑥 ¯ 𝑌 ~ 𝑡 , where 𝑏 ¯ = 1 , 𝑥 ¯ = 1 / 4 , and 𝑅 𝑡 − 𝑟 ¯ = 0.03 . If there is a positive demand shock where the economy goes from 𝑎 ¯ = 0 to 𝑎 ¯ = 0.05 , then short-run output changes by ______ percentage points (enter a negative number for a fall in short-run output and a positive number for a rise in short-run output). Round your answer to the nearest tenth of a percent.

Consider an economy with the following IS curve: 𝐼 𝑆 : 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) Suppose we assume 𝑎 ¯ = 0.03 , 𝑏 ¯ = 1 , 𝑅 𝑡 = 𝑟 ¯ = 0.045 . Let Δ 𝑌 ~ 𝑡 = 𝑌 ~ 𝑡 − 𝑌 ~ 𝑡 ′ , where 𝑌 ~ 𝑡 is short-run output when the real interest rate equals 𝑅 𝑡 and 𝑌 ~ 𝑡 ′ is short-run output when the real interest rate equals 𝑅 𝑡 ′ . If the real interest rate falls from 𝑅 𝑡 to 𝑅 𝑡 ′ = 0.02 , then Δ 𝑌 ~ 𝑡 = ______ percent. Round your answer to the nearest tenth of a percent.

Consider the IS curve 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) + 𝑥 ¯ 𝑌 ~ 𝑡 , where 𝑏 ¯ = 1 , 𝑥 ¯ = 1 / 4 , and 𝑅 𝑡 − 𝑟 ¯ = 0 . If there is no demand shock, i.e. 𝑎 ¯ = 0 , and the real interest rate increases by 1 percentage points, then short-run output changes by ______ percentage points (enter a negative number for a fall in short-run output and a positive number for a rise in short-run output). Round your answer to the nearest tenth of a percent.

Consider an economy with the following IS curve: 𝐼 𝑆 : 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) Suppose we assume 𝑎 ¯ = − 0.02 , 𝑏 ¯ = 1 , 𝑅 𝑡 = 𝑟 ¯ = 0.06 . Let Δ 𝑌 ~ 𝑡 = 𝑌 ~ 𝑡 ′ − 𝑌 ~ 𝑡 , where 𝑌 ~ 𝑡 is short-run output when the real interest rate equals 𝑅 𝑡 and 𝑌 ~ 𝑡 ′ is short-run output when the real interest rate equals 𝑅 𝑡 ′ . If the real interest rate falls from 𝑅 𝑡 to 𝑅 𝑡 ′ = 0.04 , then Δ 𝑌 ~ 𝑡 = ______ percent. Round your answer to the nearest tenth of a percent.

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