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An economy has full-employment output of 1000. Desired-(Answered)

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An economy has full-employment output of 1000. Desired consumption and desired investment are

Cd = 200 + 0.8(Y-T) ? 500r

Id = 200 ? 500r

Government purchases are 196 and taxes are T = 20 + 0.25Y

Money demand is Md/P = 0.5Y ? 250(r + ?e)

Where the expected rate of inflation ?e = 0.10. The nominal supply of money

M = 9890.

a. what are the general equilibrium values of the real interest rate, price level , consumption, and investment?

b. suppose that government purchases are increased to G = 216. What are the new general equilibrium values of the real interest rate, the price level, consumption, and investment?

 

Paper#9209209 | Written in 27-Jul-2016

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