Question

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 the balance in the money market (LM curve).

C. To determine algebraically and diagrammatically the income and
the equilibrium interest rate of the economy. (Note: Balance income
should be estimated using the LM curve function)

D. Suppose that an expansionary monetary policy is pursued, which
doubles the nominal amount of money. Find the new income and the
equilibrium interest rate of the economy. (Note: the estimate of
the new equilibrium income to be made through the function of the
LM curve)

Answer #2

answered by: anonymous

Suppose that in a closed economy with a state sector the
following relations apply: Consumption function: ? = 125 + 0.75??
where ?? = ? - ? Desirable investment: ? = 30 Government spending:
? = 50 Taxes: ? = 15
A. Find the equilibrium income, the available equilibrium income
and the equilibrium consumption.
B. Find and interpret investment and tax multipliers.
C. Calculate the savings function under the assumption that the
economy is in equilibrium as well as the...

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 desired consumption and desired investment are
?? = 300 + 0.75(? − ?) − 300?
T = 100 + 0.2Y
?? = 200 − 200?
G is the level of government purchases and G=600
Money demand is
?? ?
= 0.5? − 500(? + ??)
where the expected rate of inflation, ??, is 0.05. The nominal
supply of money M = 133,200.
Suppose the full employment output is 2500 and the price level in
the short run is 120....

Consider the following economy: Planned consumption: ? = 900 +
0.5(? − ?) − 180? Planned investment: ? = 950 − 180? Real money
demand: ( ? ? ) ? = 0.5? − 180?
a. (2 pts) Suppose ? = 400, ? = 450, and ? = 9,750. Find an
equation for the IS curve.
b. (2 pts) Find an equation for the LM curve.
c. (2 pts) Find an equation for the aggregate demand curve.
Express the AD curve...

QUESTION 2 (2,000 pts)
Suppose the market for real money balances in the
Oesterling-Mack economy can be described by the following equation
and value:
(M/P)^d = 0.5Y - 10,000r ; (M/p) ^s = 800 ,and the
nominal money supply is 1,600.
a) Solve for the equation for the
LM curve (call it LM1).
b) Consider the situation where the
market for real money balances is in equilibrium. Calculate the
real interest rate if the real GDP is 2,500. (Consider this as
point...

Suppose the market for real money balances in the
Oesterling-Mack economy can be described by the following equation
and value: (?/?)? = 0.5Y - 10,000r; (?/?)? = 800, and the nominal
money supply is 1,600.
a) Solve for the equation for the LM curve (call it LM1).
b) Consider the situation where the market for real money
balances is in equilibrium. Calculate the real interest rate if the
real GDP is 2,500. (Consider this as point A)
c)
Consider the...

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...

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...

5) The economy has an aggregate production function
fN=15N-12N2 , where N is labor
input. Labor supply is given by
NsWP=-5+3WP ,
where W is the money wage and P is the price level. Desired
consumption depends on real income, Y, and can be written as
CdY=10+0.7Y . Given real
interest rate, r, the desired investment is
Idr=30-200r . The real money
demand is characterized by LY,r=10+Y-200r . Government spending, G,
and nominal money stock, M, is given as G=0...

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...

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