Question

#9). Assume that the parameters of a particular economy are as follows (all figures are in $ billions):C = 80 + 0.8YD	I = 500
T = 100 + 0.25Y	G = 1200
X = 800	IM = 100 + 0.2Y

What is the value of equilibrium income in this economy?

#9b). Which function of money is in each of the following cases demonstrating?

a) You pay $20 for a taxi ride to Kamloops Airport.

b) A fresh TRU nursing graduate makes a monthly income of $85,000 at BC hospital

c) ‘Happy Always’ restaurant manager cashier sets the prices of meals she delivers to homes serves in dollars.

d) ‘Happy Always’ restaurant cashier places the day's receipts in the safe.

e) Wendy offers 20% discount for Double-double meal which now costs only $10.00.

f) Amazon CEO has a net worth of $100 billion

g) You deposit your tax refund check in your saving account at TD bank.

Answer 1

9)

C = 80 + 0.8YD	I = 500
T = 100 + 0.25Y	G = 1200
X = 800	IM = 100 + 0.2Y

Y = C +I + G + X - IM

Inserting the values in the above equation gives

Y = 80 + 0.8YD + 500 + 1200+ 800 - (100 + 0.2Y)

Y = 0.8 (Y -T) + 2580 -100 - 0.2Y (Since YD = Y-T)

Y= 0.8Y - 0.8T + 2480 - 0.2Y

Y = 0.6Y - 0.8 (100 + 0.25Y) + 2480

Y = 0.6Y - 80 - 0.2Y + 2480

Y = 0.4Y + 2400

0.6Y = 2400

Y = 2400/0.6 = 4000

The equilibrium level of income is 4000

9b)

a) This is the medium of exchange. In exchange for a ride, the taxi driver is paid money which can be used to satisfy his needs.

b) The function of money being demonstrated here is the Standard of Deferred Payments. The future salary is expressed in terms of money.

c) This demonstrates the unit of account. Money acts as the standard against which the values of the meals are measured.

d) This shows the store of value. Because money will be accepted in the future too, the cashier, therefore, saves for the future in terms of money.