Question

An economy is described by the following equation:

C = 1600 + 0.6 (Y - T) - 2000 r

I^{P} = 2500 - 1000 r

G = 2000

T = 1500

C is the consumption, I^{P} is the planned investment, G
is the government spending, T is the net taxes, r is the real
interest rate.

This economy is a closed economy meaning that the Net Exports are always 0, i.e. NX = 0.

a. Find an equation relating the planned aggregate expenditure (PAE) to the output and the real interest rate.

PAE = + Y - r

b. Let the real interest be 4 percent. Find the short-run
equilibrium output Y and the public saving S_{Public}.

Y =

S_{Public} = -

c. The central bank of this economy sets the real interest using the following rule: r = 0.02 + π (π is the inflation rate). Find the aggregate demand curve.

Y = - π

d. The potential output Y^{*} is 12625, what is the
long-term equilibrium inflation rate π^{*}.

π^{*}=

Answer #1

Here is another set of equations describing an economy:
C = 14,400 + 0.5(Y-T) – 40,000r
IP = 8000 – 20,000r
G = 7000
NX = -1,800
T = 8000
Y* = 40,000
a. Find a numerical equation relating planned aggregate expenditure
to output and to the real interest rate. [i.e. write down the PAE
equation]
b. At what value should the Fed set the real interest rate to
eliminate any output gap? (Hint: Set output Y equal to the...

An economy is described by the following equations:
C = 100 + 0.75(Y – T)
IP = 50
G = 150
NX = 20
T = 40
What is the marginal propensity to consume (MPC) in this
economy?
Find the autonomous expenditure (the part of PAE that does not
depend on Y)
What is the equilibrium level of output?
Assume that the economy is NOT in equilibrium, and the level of
output is Y=1,200. How much is planned spending (PAE)?...

3. The components of planned aggregate spending in a certain
economy are given by Consumption Function: C = 800 + 0.75(Y - T) –
2000r
Planned Investment: Ip = 400–3000r
Government Revenue and Spending: T = 300 and G = 450 Net Export: NX
= 75
where r is the real interest rate (For example, r = 0.01 means
that the real interest rate is 1 percent). (1) Find the level of
public saving.
(2) Suppose that the real interest...

The
components of planned aggregate spending in a certain economy are
given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r
Planned Investment: I p = 400–3000r Government Revenue and
Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the
real interest rate (For example, r = 0.01 means that the real
interest rate is 1 percent). (1) Find the level of public saving.
(2) Suppose that the real interest...

Question 1
In a certain economy, the components of planned spending are
given as:
Cd=600+0.8(Y-T)-350r, Ip=200-450r, G=250, NX=20, T=300
Find the relationship between planned aggregate expenditure and the
real interest rate, r, and output, Y, in this economy. The real
interest rate, r, is set by the Reserve Bank to equal 0.05 (5 per
cent). Find the short-run equilibrium output.
Suppose potential output (Y*) is 4100. The Reserve Bank has set the
real interest rate equal to 5 per cent....

Consider an economy that is described by the following
equations: C^d= 300+0.75(Y-T)-300r T= 100+0.2Y I^d= 200-200r
L=0.5Y-500i Y=2500; G=600; M=133,200; Pi^e=0.05. (Pi being the
actual greek pi letter sign). Please solve part D and E
(a) obtain the equation of the IS curve
(b) obtain the equation of the LM curve for a general price
level, P
(c) assume that the economy is initially in a long-run (or
general) equilibrium (i.e. Y=Y). Solve for the real interest rate
r, and...

Suppose the economy is described by the following equations:
C = 350 + .7(Y – T)
I = 100 + .1Y - 1000i
G = 500; T = 500
Money Supply (M/P)s = 3200
Money Demand (M/P)d = 2Y – 4000i
a.Write an equation for the IS relation.
b.Write an equation for the LM relation.
c.Find the equilibrium levels of Y and i.
d.Write the Aggregate Demand equation for this economy with Y
as a function of P.
e. Suppose...

An economy is initially described by the following
equations:
C = 500 + 0.75(Y - T); I = 1000 - 50r; M/P = Y - 200r;
G = 1000; T = 1000; M = 6000; P = 2;
where Y is income, C is consumption, I is investment, G is
government spending, T is taxes, r is the
real interest rate, M is the money supply, and P is the price
level.
a. Derive the IS equation and the LM...

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 ).
b. Given the above information, compute the new equilibrium real
output if government spending increases by 300.
c. What is the amount...

Consider an economy described by the following
equations:
Y=C+I+G+NX,
Y=8,000
G=2,500
T=2,000
C=500 +
0.75(Y−T)
I=900−50r
NX=1,500−250ϵ
r=r∗=8.
a.
In this economy, solve for private saving, public saving, national
saving, investment, the trade balance, and the equilibrium exchange
rate.
b.
Suppose now that G is cut to 2,000. Solve for private saving,
public saving, national saving, investment, the trade balance, and
the equilibrium exchange rate. Explain what you find.
c.
Now suppose that the world interest rate falls from 8...

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