HomeworkLib
Question

Consider a closed economy, where the price level P is constant and equal to 3.You are...

Consider a closed economy, where the price level P is constant and equal to 3.You are given the following additional information:

Cd = 2,200 + 0.8(Y - T) – 2,000r

            T = 0.25Y – 1,000

            Id = 400 + 0.1Y – 1,000r

            G = 6,720 – 0.2Y

            L = 0.25Y

            M = 15,000

A. (5 Marks): What is the equilibrium level of income? What is the equilibrium level of the interest rate? Explain how you obtained your answers.

B. (5 Marks): The government now changes its expenditure function such that

G= 6,900 – 0.2Y. What is the equilibrium level of income? What is the equilibrium level of the interest rate? Explain how you obtained your answers.

C. (5 Marks): Compare the equilibrium level of income for Part A with the equilibrium level of income for Part B. Explain why this result has occurred.

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

0 0
Add a comment
Know the answer?
Add Answer to:
Consider a closed economy, where the price level P is constant and equal to 3.You are...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Question 3 (15 Marks): Consider a closed economy, where the price level P is constant and...

    Question 3 (15 Marks): Consider a closed economy, where the price level P is constant and equal to 5.You are given the following additional information: Cd = 1,000 + 0.8(Y - T) T = 0.2Y – 100 Id = 2,000 – 1,000r G = 600 L = 20,000r M = 5,000 A. (5 Marks): What is the equilibrium level of income? What is the equilibrium level of the interest rate? Explain how you obtained your answers. B. (5 Marks): The...

  • B2. Closed Economy IS-LM-FE model: The behaviour of households and firms in a closed economy is...

    B2. Closed Economy IS-LM-FE model: The behaviour of households and firms in a closed economy is represented by the following equations Desired consumptionC 200+0.8(Y-T-500r Desired investment : r = 200-500r Real money demand where expected inflation is ㎡-0.10 and taxes depend on income according to T 20+0.25Y. (a) Derive an expression for the IS curve with the real interest rate on the left side of the equation. How does the position of the IS curve depend on G? (b) If...

  • Suppose that the following equations describe an economy. Y = Cd + Id + G Cd...

    Suppose that the following equations describe an economy. Y = Cd + Id + G Cd = 180 + 0.8(Y – T) Id = 140 – 8r + 0.1Y T = 400 G = 400 (Md/P) = 6Y – 120i MS = 6000 i = πe + r Assume expected inflation πe = 0 and price level P = 1. Find the equation for the IS curve. Find the equation for the LM curve. Find the equilibrium values for output...

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

    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...

  • Question 1: General Equilibrium in closed and open economies [50 marks] Consider the following closed Keynesian...

    Question 1: General Equilibrium in closed and open economies [50 marks] Consider the following closed Keynesian economy Desired consumption, Cd = 1000 + 0.6(Y-T) - 300r; Desired investment, Id = 600 - 300r; Money deman d, L = 0.6Y - 300r; Output, Ȳ = 4000; Expected inflation, πe = 0; Assume that we are in a closed economy. Suppose that T = G = 300 and M = 8000. Find the equilibrium values of output, consumption, investment, the real interest...

  • 1. In a three-sector economy: C = 200 + 0.75Yd T = 0.2Y I = 800...

    1. In a three-sector economy: C = 200 + 0.75Yd T = 0.2Y I = 800 G = 1000 Calculate national income when the economy is at equilibrium. Graph your results. (b)   Full employment is achieved when income is 5500. What is the multiplier? (ii)   How much should taxes be cut to achieve full employment? What is the budget at full employment? 2.In an open economy: C = 400 + 0.75Yd T = 0.2Y I = 600 G = 1000...

  • Question 1 (42 p) Consider a closed economy where goods market and finalcial markets can be descr...

    Question 1 (42 p) Consider a closed economy where goods market and finalcial markets can be described by the following equations for period t С,-100 + 0.5yo- 2000.25Y- 200r G- 100: T-200 Suppose inflation escpectations in this economy is based on past period's inflation rate, ie. Let Yo- FIN)-No the labor force is given as constant at LF- 1000. (4p) Write down the IS equation for this economy (4p) Assume a horizontal LM function where the Central Bank announces the...

  • (20 points) Assume an economy can be modeled with these equations: C 77 + 0.85(Y-T) T...

    (20 points) Assume an economy can be modeled with these equations: C 77 + 0.85(Y-T) T 17 +0.25Y 1700 (for some interest rate set by Central Bank) G = 450-0.1Y 4. X = 450; M = 550 (for some exchange rate set in markets) a. What is equilibrium output, assuming the Central Bank keeps the interest rate constant? b. If the Central Bank were to increase interest rates so that investment falls to just 650, how much would output change?...

  • TUHATV 3. Consider a closed economy of Balticland that can be described by the following functions: All values C,...

    TUHATV 3. Consider a closed economy of Balticland that can be described by the following functions: All values C, 1, and G are in billions of USD. Consumption expenditure: C = 110 + 0.5(Y-T) Investment expenditure: 1g = 1,100 - 58r, where r = 2.5% Government expenditure: G = 550 Lump-sum constant taxes: T = 550 (a) Find the equilibrium Y, C and lg The Bank of Thailand (BOT) has recently announced that consumer confidence in Thailand fell. Let the...

  • s. (2 PTS) Assume the following closed economy model: C-350+0,7 (Y 1 300 + 0,04%-30i G=330...

    s. (2 PTS) Assume the following closed economy model: C-350+0,7 (Y 1 300 + 0,04%-30i G=330 ; T . 400 + 0.1Y (MP)"-1,4%. 60i M-4.610;P-2 Where C consumption, I- investment, Y- income, i-interest rate (in percentage ponts, 6, 7, 8 . .), О . government spending; (MP), demand for real balances, Me money supply a) Compute the equilbrium levels for income, the interest rate, consumption investment and the budget balance b) Suppose the goal of the govermnment is to increase...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT