Question

2. Suppose an inflationary economy can be described by the following equations representing the goods and money markets:

C = 20 + 0.7Yd

M = 0.4Yd

I = 70 – 0.1r

T = 0.1Y

G = 100

X = 20

Ld = 389 + 0.7Y – 0.6r

Ls = 145

where G represents government expenditure, M is imports, X is
exports, Y is national income, Yd is disposable income, T is
government taxes (net of transfer payments), I is investment, r is
the rate of interest, C is consumption, Ld is money demand, and Ls
is money supply.

i) Use the inverse matrix method to solve for the equilibrium level
of national income and the equilibrium rate of interest in this
economy. (Note: ½ of the marks in this part are given for the
correct set up of the equations. Explain what you are doing,
including how equilibrium is established in each market.)

ii) Now use Cramer’s rule to find your answer.

Answer #1

An open economy is described by the following system of
macroeconomic equations, in which all
macroeconomic aggregates are measured in billions of Namibian
dollars, N$.
Y = C + I + G + X – M
C = 160 + 0.6Yd
T = 150 + 0.25Y
I = 150
G = 150
E = 300
M = 50 + 0.1Y, Yf = 1500
Where: Y is domestic income
Yd is private disposable income
C is aggregate consumption spending
T is...

The following is a model that describes the economy of Ghana
with all values in (GHȼ million).
Y = C + I + G + X – M
C = 1200 + 0.9Yd Yd
Yd = Y – T
T = 200 + 0.1Y
I = 300
G = 1000
X = 600
M = 400 + 0.1Yd
(where Y is national income, C is consumption, G is government
spending, X is export, M is import, Yd is disposable income...

Assume the following set of equations
describe the economy of Agriland:
Consumption = $100 billion + .6YD YD
refers to disposable income
Investment = $90 billion
Government spending = $70 billion
Taxes = .25Y
Exports = $65 billion
Imports = 0.1Y
Calculate the equilibrium level of output for Agriland? (Show
formula and calculations)
Calculate the multiplier for Agriland. (Show formula and
calculations)
What is the impact on the equilibrium level of output in
Agriland of an increase in government spending...

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...

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...

An economy is described by the following equations:
C = c0+ c1YD
YD= Y – T
I = b0+ b1Y
G = G (autonomous)
T = T (autonomous)
Suppose that consumers decide to consume less (and therefore
save more) for any given amount of disposable income. Specifically,
assume that consumer confidence (c1)falls. What will
happen to output, investment, public saving and consumption?

If a small economy can be described by the following
equations:
C = 50 + 0.75 (Y − T)
I = 180 − 15r
NX =200−50ℇ
M/P =Y - 40r
T =200
G=200
M = 3000
P = 3 r ∗ =6
a. Derive and graph the specific IS *and LM* curves for this
economy.
b. Calculate the equilibrium exchange rate, level of income, and
net exports.
c. Assume a floating exchange rate. Calculate what happens to
the exchange rate,...

IS-LM Model (Closed Economy)
The following equations describe a small open economy.
[Figures are in millions of dollars; interest rate (i) is in
percent]. Assume that the price level is fixed.
Goods Market
Money
Market
C = 250 +
0.8YD
L = 0.25Y – 62.5i
YD = Y + TR –
T
Ms/P = 250
T = 100 + 0.25Y
I = 300 – 50i
G = 350; TR = 150
Goods market equilibrium condition: Y = C + I...

. Suppose an economy is represented by the following
equations.
Consumption
function
C = 200 + 0.8Yd
Planned
investment
I = 400
Government
spending
G = 600
Exports
EX = 200
Imports
IM = 0.1Yd
Autonomous
Taxes
T = 500
Marginal Tax
Rate
t=0.2
Planned aggregate
expenditure AE = C
+ I + G + (EX - IM)
By using the above information calculate the equilibrium level
of income for this economy and explain why fiscal policy becomes
less effective...

An economy is described by the following equations:
Y = C + I + G
C = c0+ c1.YD
YD= Y – T
T = t1.Y – t0
And 0 < c1< 1,
0 < t1< 1,
c0> 0,
t0> 0,
G and I are autonomous and higher than zero.
Is the following statement true? “An increase in the marginal
income tax rate t1leads to a reduction of the
primary deficit of the government (=G – T)”
Does the tax...

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