Question

Assume that the world works according to the Classical model. In a small open economy, output is produced according to a Cobb-Douglas production function, consumption is equal to C=40+0.6(Y-T) and the investment function is I=280-10r. You know that the output produced is Y=900, government spending is G=150, taxes are T=90 and that the world real interest rate is 4% (r*=4). In
all the questions below, make sure to explain your answers and show
all your work. a.
Compute: i. Private saving, Public saving, and National saving; ii.
the amount of net capital outflows for this country; iii. the trade
balance of this country. Show your work. b.
Assume that the public authorities of this country decide to
decrease government spending G from $150 to $100. Assume that all
other countries around the world leave their policies
unchanged. c.
Assume again that in this country government spending G is decreased from $150 to $100.
However, assume now that most countries in the rest of the world
decide to follow the same policy and decrease government spending.
As a consequence, the world real interest rate decreases to 3%
(r*=3). |

Answer #1

hi. Please post parts and subparts in lot of four. Thank you!

Economists in Fundlandia, a closed economy, have collected the
following information about GDP and public savings in their
country:
Y = 1000
G = 100
T = 100
They further estimate that national savings and investment are
governed by the following expressions:
S = 150 + 50*r
I = 600 - 100*r
Where r is the country's real interest rate in % terms (thus if you
find r = 5, then r is 5%).
Problem Set #2 - Part II...

A. Classical/General Equilibrium
Model: Assume that GDP (Y) is 8,500B. Consumption (C) is
given by the equation C = 210B + 0.9(Y – T). Investment (I) is
given by the equation I = 1,200B – 100B(r), where r is the real
rate of interest. Taxes (T) are 400B and government spending (G) is
500B. Show/type your work/calculations!
1. In this economy, compute private savings, public savings, and
national savings (9 points)
Private savings =
Public savings =
...

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...

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.

In the Keynesian Model assume the following information:
C=1000+0.5Yd I=300 G=200 T=100 here Yd=Y-T. Note that I, G, T,
represents private investment, Government spending and Taxes,
respectively. What are: (i) the total injections and (ii) total
leakages What is the equilibrium level of income, consumption, and
saving and disposable income Assume that the level of output is
1200 how does the economy adjust to equilibrium, specifically
mention inventory levels. Suppose private investment will decrease
by 150, by how much the...

8. Use the classical model of a closed economy to predict how
each of the following shocks should affect a nation’s real
aggregate income (Y), national saving (S), investment (I), and
interest rate (r). Be sure in each case to clearly state your
predicted direction of change (up, down, or no change) for all four
variables and illustrate your predictions for S, I and r with a
supply/demand diagram for the loanable funds market.
The supply of capital (KS) increases
...

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...

Equilibrium Values and Saving
Assume that GDP (Y) is 5,000. Consumption (C) is given by the
equation C = 1,000 + 0.3(Y – T). Investment (I) is given by the
equation I = 1,500 – 50r, where r is the real interest rate in
percent. Taxes (T) are 1,000. Government spending (G) is 1,500.
What are the equilibrium values of C, I, and r?
What are the values of private saving, public saving, and
national saving?
Now assume there is...

in a small open economy with full employment, consumption
depends only on disposable income. National saving is 300,
investment is given by I = 400 – 20r, where
r is the real interest rate measured in percentage, and
the world real interest rate is 10 percent.
Compute the investment, trade balance, and net capital
outflow.

Consider a closed economy to which the Keynesian-cross analysis
applies. Consumption is given by the equation C = 200 + MPC(Y – T).
Planned investment (I) is 300, government spending (G) is 300 and
taxes (T) is 300. Assume MPC is equal to 2/3.
(a) If Y is 1,500, what is planned spending? What is inventory
accumulation or decumulation? Is equilibrium Y higher or lower than
1,500?
(b) What is equilibrium Y?
(1 mark)
(c) What are equilibrium consumption, private...

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