Question

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 to 3 percent.
(G is again 2,500.) Solve for private saving, public saving,
national saving, investment, the trade balance, and the equilibrium
exchange rate. Explain what you find.

Answer #1

**Solution:**

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 economy is described by the following:
Y=3,000
C=200+0.9(Y-T)
I=400-40r
G=T=500
R=5
NX=400-400e
Solve for net exports and the real exchange rate.

MACROECONOMICS
given:
Crowding out with algebra. Consider an economy
described by the following model.
Y = K1/3L2/3
K = 1000; L = 1000
G = 100
T = 100
C = 250 + 0.5(Y-T)
I = 600 – 100r
i. Calculate the equilibrium real interest rate, national
saving, public saving, private saving, consumption, output, and
investment. List your numbers out like this:
Y = 1000
r = 4
S = 200
Spub = 0
Spriv = 200
C = 700...

1. Consider an economy that produces and consumes bread and
automobiles. In the table below are data for two different
years:
Year 2010
Year 2025
Price of an automobile
$50,000
$60,000
Price of a loaf of bread
$10
$20
Number of automobiles produced
100
120
Number of loaves of bread produced
500,000
400,000
Using the year 2010 as the base year, compute the following:
nominal GDP, implicit price deflator and the CPI.
2.
Assume that GDP (Y) is 5,000. Consumption...

An economy is described by the following equation:
C = 1600 + 0.6 (Y - T) - 2000 r
IP = 2500 - 1000 r
G = 2000
T = 1500
C is the consumption, IP 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...

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...

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)?...

Y = 5,000
C = 1,000 + 0.3(Y - T)
I = 1,500 - 50r
T = 1,000
G = 1,500
where Y is total income (GDP), G is government spending, C is
aggregate consumption, I is the investment function, T is
government taxes and r is the real interest rates in percent.
b. Jupiter Island is a small open economy (with perfect capital
mobility) in the world economy described above, though not involved
in the technological innovation. Use the...

Consider the following short-run model of an open economy:
Y = C+I+G+NX
C = 100+(2/3)(Y-T)
I = 200
NX = X-(1/E)IM
X = (1/E)400
IM = (1/6)E Y
Domestic and foreign prices are constant with
P=P*=1. Thus, the real exchange rate is equal
to the nominal rate E.
The policy makers want to achieve the following targets for
output, consumption and net exports: YT=1200,
CT=780 and NXT=0. Show how these targets
can be achieved using government consumption (G), taxes
(T)...

Given an economy described by the following set of
equations.
Y = C(Y - T) + I(r) + G
C = 200 + 0.80(Y - T)
I = 300 - 2r
G = 400
T = 200
(M/P)d = 0.80Y - 8r
Ms = 5,600
Price-level = P = 2
What is the equilibrium level of investment?

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