In: Economics

Suppose the followings represent the goods market:

C = C0 + c(Y-T) (Consumption Function)

I = I0 - d.i (Investment Function)

G = T = T0 (Government’s Balanced Budget Condition)

Suppose the followings represent the financial markets:

Md = a - b.i (Money Demand Function)

Ms = M0 (Money Supply Function)

i) Please compare the Money Demand Function represented above with the standard Money Demand function (referred in your book) and discuss about similarities and differences?

ii) Describe the equilibrium in both financial and goods market by solving the system (Goods and Financial Markets) for equilibrium i and Y?

1. Assume that the consumption
function is given by C = 200 + 0.5(Y –
T) and the investment function is I = 1,000 –
200r, where r is measured in percent, G
equals 300, and T equals 200.
What is the numerical formula for the
IS curve? What is the slope of the IS curve?
(Hint: The slope of the IS curve is the
coefficient of Y when the IS curve is written
expressing r as a function of...

1. Assume that the consumption
function is given by C = 200 + 0.5(Y –
T) and the investment function is I = 1,000 –
200r, where r is measured in percent, G
equals 300, and T equals 200.
a. What is the
numerical formula for the IS curve?
b. What is the slope
of the IS curve? (Hint: The slope of the
IS curve is the coefficient of Y when the
IS curve is written expressing r as a...

In a closed economy, the consumption function is:
c = 1.15 + 0.75(y - t) billions of 1992 dollars.
The tax function is:
t = 0.1y + 0.1 billions of 1992 dollars.
Planned investment is $1 billion and planned government
expenditures
are $1.5 billion. Calculate:
Explain the adjustment process to the new equilibrium. (3
points)
How does the government’s expenditures on $0.25 billion worth
of
goods and services get financed? (3 points)
Show that leakages from the circular flow equal...

Assume that the consumption function is given by C = 200 + 0,
75(Y − T). Investment is 100; government purchases and taxes are
both 100.
(a) This economy has TODAY a GDP of 1700, is this an equilibrium
level of GDP? (HINT: Find the AS the AD and compare them).
(b) Will the GDP NEXT WEEK increase or decrease? (HINT: looking
to your previous answer see if AS is lower or higher than AD, then
think what will happen...

Suppose an economy is described by the following
relationships:
C = a + b(Y-T).
Consumption, C, is a function of disposable (i.e., after-tax)
income, (Y -T). The terms a and b are parameters.
I = c – dR where I is the investment and R is the rate of
interest. The terms c and d are parameters.
NX = m - ne where I is the net exports and e is the real
exchange rate. The terms m and n...

In the Keynesian cross, assume that the consumption function is
given by: C(Y-T)=210+0.5(Y-T)
and government purchases and taxes are both 100. Current planned
investment is 750.
A) Plot the Keynesian cross with both axes going from 0 to 8000.
Be sure to label the axes and the planned expenditure function as
PE0.
B) What is the equilibrium level of income? Show this on your
graph as Y0.
C) Give the formula for the government purchase multiplier and
compute it for...

2. Assume a consumption function C = 100 + 0.8(Y-T), and let G =
200, T = 200, I = 100. a. First, suppose there is just a tax cut
alone, increasing T from 200 to 250. Use the relevant Keynesian
multiplier to compute the change in output. (5 pts)
b. If instead, there is an increase in government spending from
200 to 250. By how much will output change? (5 pts)
c. Now suppose there is a simultaneous action...

Assume the following model of the expenditure sector:
C = 1000 +.7 (Y-T) Consumption Function
T = 300+ .2985 Y Tax Function
I = 500 – 50 r Investment Function
G = 2000 Government Expenditures
NX = - 1500 Net Exports
Md/P = .5 Y -50 r Demand for Money
Ms/P = 1000 Money Supply
a- Calculate the multiplier for this economy. (Use two decimal
points)
b- Drive the “IS” and “LM” equations for this economy.
c- Fiscal policy authorities...

Consider the economy of Hicksonia
a) The consumption function is given by: C=300+0.6(Y-T). The investment function is: I=700-80r. Government purchases and taxes are both 500. For this economy, graph the IS curve for r changing from 0 to 8
b) The money demand function in Hicksonia is (M/P)^d=Y-200r. The money supply M is 3000 and the price level P is 3. For this economy, graph the LM curve for r changing from 0 to 8.
c) Find the equilibrium interest...

1. *Suppose that the economy is described by: Y
=C(Y,T)+I(Y,i)+G, with G, T exogenous.
(a) Use the total derivative to derive di/dY
(b) What is the sign of this derivative?
(c) What does the slope of the line depend on? Explain the
intuition.
(d) Graph this curve.
(e) Use the total derivative to find dY/dG and dY/dT

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