Question

The
components of planned aggregate spending in a certain economy are
given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r
Planned Investment: I p = 400–3000r Government Revenue and
Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the
real interest rate (For example, r = 0.01 means that the real
interest rate is 1 percent). (1) Find the level of public saving.
(2) Suppose that the real interest rate is 5%. Show the
autonomous consumption level and the autonomous expenditure level.
(3) How does a two percentage point decrease in the real
interest rate affect the short-run equilibrium output? 7
(4) Suppose that the potential output of this economy equals 4800.
Find the short-run equilibrium real interest rate that brings the
economy to full employment. (5) Suppose Government
Revenue T = tY (0< t <1); r stays at the initial level (5%),
Please calculate the multiplier effect of the government spending
increase on the output change (ΔY/ΔG).

Answer #1

Real interest rate should be 6% for full employment level

3. The components of planned aggregate spending in a certain
economy are given by Consumption Function: C = 800 + 0.75(Y - T) –
2000r
Planned Investment: Ip = 400–3000r
Government Revenue and Spending: T = 300 and G = 450 Net Export: NX
= 75
where r is the real interest rate (For example, r = 0.01 means
that the real interest rate is 1 percent). (1) Find the level of
public saving.
(2) Suppose that the real interest...

Question 1
In a certain economy, the components of planned spending are
given as:
Cd=600+0.8(Y-T)-350r, Ip=200-450r, G=250, NX=20, T=300
Find the relationship between planned aggregate expenditure and the
real interest rate, r, and output, Y, in this economy. The real
interest rate, r, is set by the Reserve Bank to equal 0.05 (5 per
cent). Find the short-run equilibrium output.
Suppose potential output (Y*) is 4100. The Reserve Bank has set the
real interest rate equal to 5 per cent....

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 in which taxes, planned investment,
government spending on goods and services, and net exports are
autonomous, but consumption and planned investment change as the
interest rate changes. You are given the following information
concerning autonomous consumption, the marginal propensity to
consume, planned investment, government purchases of goods and
services, and net exports:
Ca = 1,500 – 10r; c = 0.6; Ta = 1,800; Ip = 2,400 – 50r; G =
2,000; NX = -200
(a)Derive Ep and...

2) Consider the following Keynesian model of the economy.
Consumption Function: C = 12 + .6 Y d,
Investment Function: I = 25 − 50 r,
Government Spending: G = 20,
Tax Collections: T = 20,
Money Demand Function: L d = 2 Y − 200 r,
Money Supply: M = 360,
Price Level: P = 2.
a) Find an expression for the IS curve and plot it.
b) Find an expression for the LM curve and plot it.
c)...

Suppose an economy is represented by the following
equations.
Consumption function C = 300 + 0.8Yd
Planned investment I = 400
Government spending G = 500
Exports EX = 200
Imports IM = 0.1Yd
Autonomous Taxes T = 500
Marginal Tax Rate t=0.25
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 how multiplier changes when we
have an...

. 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...

Consider the following economy (with flexible exchange rate
system):
• Desired consumption: Cd = 300 + 0.5Y − 2000r
• Desired investment: Id = 200 − 3000r
• Government purchases: G = 100
• Net export: NX = 350 − 0.1Y − 0.5e
• Real exchange rate: e = 20 + 1000r
• Full employment: Y ̄ = 900.
• Nominal money stock: M = 4354
• Real money demand: L = 0.5Y − 200r
(a) Find the equations for...

. 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...

Suppose that the economy is characterized by the consumption
function C=151+ 0.1(Y-T) with exogenous investment I = 10,
government purchases G = 20, and taxes T = 10. Which of the
following is true?
the multiplier is 0.9
the equilibrium consumption/output ratio is C/Y = 0.9
the autonomous spending is 170.
equilibrium output is Y = 200
the government budget is balanced

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