Question

Consider the economy of Wiknam. The consumption function is given by C = 250 + 0.6 ( Y – T ) . The investment function is I = 100 – 20 r . The money demand function is ( M P ) d = Y – 20 r . Round answers to two places after the decimal where necessary.

a. Government purchases and taxes are both 100. In the accompanying diagram, graph the IS curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations.

b. The money supply M is 2,875 and the price level P is 5. In the accompanying diagram, graph the LM curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations.

**c.** Find the equilibrium interest rate,
*r*, and the equilibrium level of income *Y*.

Answer #1

2) Consider the following Keynesian model of the economy.
Consumption Function: C = 12 + .6 Y d,
Investment Function: I = 25 − 50 r,
Government Spending: G = 20,
Tax Collections: T = 20,
Money Demand Function: L d = 2 Y − 200 r,
Money Supply: M = 360,
Price Level: P = 2.
a) Find an expression for the IS curve and plot it.
b) Find an expression for the LM curve and plot it.
c)...

Suppose that economy of Portugal is characterized by the
following C = 200 + 0.5 (Y - T) Represents the consumption function
I = 600 – 30 r represents the investment function G = 300
represents the public spending T = 300 represents the level of
taxation (m/p)d = y - 40 r represents the money demand function
(m/p)s = 1500 r represents the real money supply d Y represents the
global output Find the IS curve the LM curve...

Assume the following equations for the goods and money market of
an economy:
C = 250 + .8(Y-T)
I = 100 - 50r
T = G = 100.
Ms = 200
Md = 0.2Y – 100r
a) Derive the LM curve from the Md and Ms equations given above.
Is this upward or downward sloping? The LM curve is written as Y =
__ +/-__r.
b) Using the equation of the original IS curve and the LM curve
in part...

Consider the following economy (with flexible exchange rate
system):
• Desired consumption: Cd = 300 + 0.5Y − 2000r
• Desired investment: Id = 200 − 3000r
• Government purchases: G = 100
• Net export: NX = 350 − 0.1Y − 0.5e
• Real exchange rate: e = 20 + 1000r
• Full employment: Y ̄ = 900.
• Nominal money stock: M = 4354
• Real money demand: L = 0.5Y − 200r
(a) Find the equations for...

The production function in an economy
is Y = 2(7N-0.02N2) With this production function, the
marginal product of labor is .mpn = 14 - .08N.
Labor Supply is , N8 =
88+2w,
Desired consumption is ,
Cd=100+0.8Y -5020r -.5G,
Desired investment is
Id=100-500r
Real money demand is Md/P =
Y-2000 (r+?e)
Other variables are expected inflation
?e=.05 , government purchases G = 200,
and money supply is M = 2100
1. Find the general equilibrium values of the real wage,...

Consider a small open economy given by the
following:
Consumption Function: Ct = 17.2 + 0.7(Yd)t
Investment Function: It = 24 -100rt
Real Demand for Money: Lt = 6Yt-1400r
Net Exports Schedule: NXt = 8 – 4et
Government Spending: G0 = 36
Tax Collections: T0 = 36
World Interest Rate: r0 = 0.15
Price Level: P0 = 4
Domestic Money Supply: M0 = 2520
Assume further that the economy is currently at the
long-run equilibrium.
(10 points) Graph the situation...

1. Consider an economy with the given equations.
Y=C+I+GY=C+I+G
C=112+0.6(Y−T)C=112+0.6(Y−T)
I=120−10rI=120−10r
(MP)d=Y−15r(MP)d=Y−15r
G=$35G=$35
T=$45T=$45
M=$1200M=$1200
P=3.0
a. Use the relevant set of equations to derive the IS curve and
graph it.
b. What is the equation for the IS curve?
Y =
c. Use the relevant set of equations to derive
the LM curve.
d. Calculate the equilibrium level of income (Y) and
the equilibrium interest rate (r).
Y=
r (%)=
e. Use the relevant set of equations to derive...

Assume that the consumption function is given by
Ct = 150 + 0.75(Yt –
T)
I = 250; G = 500; T = 500
(2 point) Write down the planned expenditure as a function of
current output/income (Yt):
PE (Yt+1) =
____________________________________.
(4 points) What is the equilibrium level of income? Show your
work.
(4 points) If G increases to 550, what is the new equilibrium
level of income? Show your work.
Given
Yt+1=Ct+I+G
Ct=50+0.8(Yt-T)
I = 200 – 5r...

Suppose that in a closed economy with a public sector the
following relations apply: Consumption function: C = 200 + 0.60Yd
where (Υd = Y –T) Desirable investment: Ιp = 400 - 560r Government
expenditure: G = 250 Taxes: Τ = 50 Real money demand for
transactions: 0.5Y Real money demand for speculation: 600 - 2200r
Nominal amount of money: M = 1000 Price level: P = 1.25
A. Find the equilibrium in the commodity market (IS curve).
B. Find...

Consider the following Keynesian (short-run) model along with
the Classical (long-run) model of the economy.
Labor Supply: Le = 11
Capital Supply: K=11
Production Function:
Y-10K.3(Le).7
Depreciation Rate: &=.1
Consumption Function: C=12+.6Yd
Investment Function: I= 25-50r
Government Spending: G=20
Tax Collections: T=20
Money Demand Function: Ld=
2Y-200r
Money Supply: M=360
Price Level: P=2
Find an expression for the IS curve and plot it.
Find an expression for the LM curve and plot it.
Find the short run equilibrium level of...

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