Question

Find the equilibrium interest rate and GDP using this information.

C = a + 0.7(Y – T)

a = 650 – 10r

T = 450 + 0.15Y

I = 800 – 30r

NX = 1000 – 0.10Y

(M/P)^{d} = 0.35Y – 100r

M^{s}/P = 1050

Answer #1

In goods market equilibrium, Y = C + I + G + NX [Here, G = 0]

Y = 650 - 10r + 0.7[Y - (450 + 0.15Y)] + 800 - 30r + 1,000 - 0.1Y

Y = 2,450 - 40r + 0.7(Y - 450 - 0.15Y) - 0.1Y

Y = 2,450 - 40r + 0.7(0.85Y - 450) - 0.1Y

Y = 2,450 - 40r + 0.595Y - 315 - 0.1Y

Y = 2,135 - 40r + 0.495Y

(1 - 0.495)Y = 2,135 - 40r

0.505Y = 2,135 - 40r

Y = (2,135 - 40r) / 0.505.........[Equation of IS curve]

In money market equilibrium, (M/P)d = Ms/P

0.35Y - 100r = 1,050

0.35Y = 1,050 + 100r

Y = (1,050 + 100r) / 0.35.........[Equation of LM curve]

In general equilibrium, Y_{IS} = Y_{LM}.

(2,135 - 40r) / 0.505 = (1,050 + 100r) / 0.35

0.35 x (2,135 - 40r) = 0.505 x (1,050 + 100r)

747.25 - 14r = 530.25 + 50.5r

215 = 64.5r

r = 3.33

Y = [1,050 + (100 x 3.33)] / 0.35 = (1,050 + 333) / 0.35 = 1,383 / 0.35 = 3,951.43

Find the equilibrium interest rate and GDP using this
information.
C = a + 0.7(Y – T)
a = 650 – 10r
T = 450 + 0.15Y
I = 800 – 30r
NX = 1000 – 0.10Y
(M/P)d = 0.35Y – 100r
Ms/P = 1050

Assume the following equations summarize the structure of an
economy.
C = Ca + 0.7(Y - T)
Ca = 1,000 - 10r
T = 100 + 0.15Y
(M/P)d = 0.3Y - 20r
MS/P = 3,000
Ip = 3,500 - 20r
G = 3,000
NX = 2,000 - 0.4Y
a. Calculate the equilibrium real output (Y) and (r ).
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T = 70 G: government
G = 110
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Ms = 2364 Ms: money supply
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(T) = 450;
Government spending (G) = 400.
i. Compute consumption, private savings, public savings, national
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and the real interest rate.
ii. Using the same model, except now C= 200 + 0.6(Y-T). Compute
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iii....

Assume the following equations summarize the structure of an
open economy:
C= 500 +
.9 (Y –
T)
Consumption Function
T = 300 +
.25
Y
Tax
I = 1000
– 50 i Investment equation
G =
2500
Government
Expenditures
NX = 505
Net Export
(M/P)d =
.4 Y -37.6 i Demand for Money (i= interest rate)
(M/p) s =
3000
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5- Derive the equation for the LM curve.
6-...

A. Classical/General Equilibrium
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Private savings =
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Y = C(Y - T) + I(r) + G
C = 200 + 0.80(Y - T)
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