Question

Consider an economy in the short-run described by the following equations:

Z = C + I + G

G = 500

T = 500

C = 250 + 0.75(Y – T)

I = 625

a. What is the equilibrium condition that allows us to solve for Y. Find Y. Compute private saving, public saving and total/national saving at this level of Y.

b. What is the value of the marginal propensity to consume? What is the value of the expenditure

multiplier?

c. Now suppose that G rises to 600. Find the new equilibrium value of Y.

d. Compute private saving, public saving and total/national saving at the new equilibrium.

Answer #1

Consider an economy in the short-run described by the following
equations:
Z = C + I + G
G = 500
T = 500
C = 250 + 0.75(Y – T)
I = 425 + 0.05Y
a. Solve for equilibrium output Y.
b. What is the value of the expenditure multiplier now? Why would
the expenditure multiplier be bigger?
c. Now, if G increases to 600, by how much will Y increase?
d. Suppose that bo= 425 increases to 525....

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...

Consider an economy with the given equations.
Y = C + I + G + NX
Y=$5500
G=$1100
T=$1200
C=$200+0.60(Y−T)
I=1100−50r
NX=1270−1270?
r=r*=5
b. Suppose now that G rises to $1400. Solve for private saving,
public saving, national saving, investment, the trade balance, and
the equilibrium exchange rate.
Public savings = $_____
National savings = $____
Investment = $_____
Net exports (trade balance) = $____
Exchange rate _____
c. Suppose that the world interest rate rises
from 5 to 12...

Consider the following economy
Y = C + I + G
Y = 5,000
G = 1000
T = 1000
C= 250 + 0.75(Y-T)
I = 1000 – 50r
Compute private savings, public savings and national
savings.
Find the equilibrium interest rate.
Suppose G rises to 1,250. Compute private savings, public
savings, national savings and the interest rate. Explain
intuitively why these variables have changed

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)?...

1. Suppose the United States economy is represented by the
following equations: Z= C + I + G , C = 500 + 0.5Yd, Yd = Y − T T =
600, I = 300, G = 2000, Where, Z is demand for goods and services,
Yd is disposable income, T is taxes, I is investment and G is
government spending. Y is income/production. (a) Assume that the
economy is in equilibrium. What does it mean in terms of the...

a. Consider the following long-run model:
Real GDP (Y) = 2,000; Consumption (C) = 300 + 0.6 (Y-T);
Investment (I) = 500 -30r where r is the real interest rate; Taxes
(T) = 450;
Government spending (G) = 400.
i. Compute consumption, private savings, public savings, national
savings, investment
and the real interest rate.
ii. Using the same model, except now C= 200 + 0.6(Y-T). Compute
consumption,
private savings, public savings, national savings, investment and
the real interest
rate.
iii....

Suppose that the economy is characterized by the following
behavioral equations:
C =160+0.60YD
I = 150
T = 100
Assume that government spending (G) is equal to
110.
Equilibrium output (Y) =
Total demand is _______ production.
Private saving =
Public saving =
Total saving is _____ investment.

Assume the following model of the economy, with the price level
fixed at 1.0:
C = 0.8(Y – T)
T = 1,000
I = 800 – 20r
G = 1,000
Y = C + I + G
Ms/P =
Md/P = 0.4Y –
40r
Ms = 1,200
A. Write a numerical formula for the IS curve, showing
Y as a function of r alone. (Hint:
Substitute out C, I, G, and
T.)
B. Write a numerical formula for the LM...

For the following economy, find autonomous expenditure, the
multiplier, short-run equilibrium output, and the output gap. By
how much would autonomous expenditure have to change to eliminate
the output gap?
C
= 450 + 0.75 (Y – T )
I p
= 200
G
= 140
NX
= 60
T
= 100
Y*
= 3,200
Instructions: Enter your responses as absolute
numbers.
Autonomous expenditure:
Multiplier:
Short-run equilibrium output:
There is (Click to select) a
recessionary an
expansionary no output gap in the...

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