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:**

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...

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Y = 5,000
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C= 250 + 0.75(Y-T)
I = 1000 – 50r
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Find the equilibrium interest rate.
Suppose G rises to 1,250. Compute private savings, public
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Now assume there is...

An economy is initially described by the following
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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)
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i. Calculate the equilibrium real interest rate, national
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1. Consider an economy that produces and consumes bread and
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$20
Number of automobiles produced
100
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Number of loaves of bread produced
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1. Suppose an economy is described by the consumption function
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Z = C + I + G
G = 500
T = 500
C = 250 + 0.75(Y – T)
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