Question

In: Economics

Suppose the goods market in an economy is represented by the following equations. C = 500...

Suppose the goods market in an economy is represented by the following equations.

C = 500 + 0.5YD           I = 500 – 2000 i + 0.1Y       G = 500

X = 0.1Y* + 100e          Q = 0.2Y - 100e                   T = 400

Y* = 1000                      i = 0.05 (5%)                        e = 1

Z = C + I + G + X - eQ                                               Y = Z (equilibrium condition)

  1. Suppose G increases by 100 (to 600). Calculate the new equilibrium level of output. What is the size of the multiplier?  

  2. Based on your answer to d, calculate the new level of Q. Calculate the change in net exports caused by this increase in G.

  3. Suppose the marginal propensity to imports (in imports equation) decreases from 0.2 to 0.1. Assume all other variables are the same. What happens to the size of multiplier? Compare the changes in Y caused by the increase in G in part d and with a new marginal propensity to imports (0.1). answer this please

Solutions

Expert Solution

Rahul Sunny answered 1 week ago
Next > < Previous

Related Solutions

Consider a closed economy. The goods market is represented by the following equations: C = 160...
Consider a closed economy. The goods market is represented by the following equations: C = 160 + 0.6YD I = 100 + 0.2Y – 500i T = 100 G = 100 YD = Y - T 1. Derive the IS equation from the equilibrium position Y = Z ≡ C + I + G and draw the IS curve on the graph. In the money market, the real money demand is (M d/P) = Y – 1,500i; and the real...
Consider a closed economy. The goods market is represented by the following equations: C = 160...
Consider a closed economy. The goods market is represented by the following equations: C = 160 + 0.6YD I = 100 + 0.2Y – 500i T = 100 G = 100 YD = Y - T 1. Derive the IS equation from the equilibrium position Y = Z ≡ C + I + G and draw the IS curve on the graph. In the money market, the real money demand is (M d/P) = Y – 1,500i; and the real...
Suppose the goods-market of the economy of Macronium is described by the following equations Consumption: C...
Suppose the goods-market of the economy of Macronium is described by the following equations Consumption: C = 400 + 0.80 Yd where Yd refers to disposable (post-tax) income. Government collects lump-sum taxes at the amount 250 units, i.e. Taxes T = 250 Investment demand is given by Investment: I = 250 -500r Government purchases has two components: 1- Lump Sum government purchases at G' = 50 2- A proportional component g: 10% of the output, i.e. gY= 0.10Y Hence, total...
Suppose the United States economy is represented by the following equations: Z = C + I...
Suppose the United States economy is represented by the following equations: Z = C + I + G            C = 100 +0.5YD                     T = 200                     I = 30 YD = Y - T                 G = 100 Suppose the Okun's law is given by: ut - ut-1 = -0.4(gyt - 3%) a-) What is the output growth needed to result in reducing unemployment by 1% in a year. b-) What is the output growth needed to reduce unemployment by 2% over the next 4...
These are the equations for the goods, and money market in a hypothetical economy: C =...
These are the equations for the goods, and money market in a hypothetical economy: C = 250 + .8(Y-T) I = 100 - 50r T = G = 100. Ms = 200 Md = 0.2Y – 100r ANSWER FROM PART C AND LATER ---a) What is the equation of the IS curve? Is this upward or downward sloping? ----b) If T falls to 50 and everything else is unchanged, what is the equation of the new IS curve? c) Draw...
1.     Suppose the United States economy is represented by the following equations: Z = C + I...
1.     Suppose the United States economy is represented by the following equations: Z = C + I + G            C = 100 + .YD                     T = 200                     I = 30 YD = Y - T                 G = 100 Suppose that the wage and price setting relations are given by W = Pe(1-u) P = (1+μ) W a.      If P = Pe and the mark-up is 20% find the real wage b.     Calculate the natural rate of unemployment c.      Calculate the real wage and the natural rate of...
Consider an economy represented by the following expenditure equations (in $ trillion): Y = C +...
Consider an economy represented by the following expenditure equations (in $ trillion): Y = C + I + G + NX C = 2 + ⅔(Y – T) I = 6 – r G = 4, T =3, NX = -1 What is the equation for the IS curve, Y=f(r)? For the short run, consider the inflation rate fixed at π = 2. The Central Bank wants to target the real interest rate r = 2. What should be the...
Consider an economy represented by the following expenditure equations (in $ trillion): Y = C +...
Consider an economy represented by the following expenditure equations (in $ trillion): Y = C + I + G + NX C = 2 + ⅔(Y – T) I = 6 – r G = 4, T =3, NX = -1 For the short run, consider the inflation rate fixed at π = 2. The Central Bank wants to target the real interest rate r = 2. What should be the target for the nominal interest rate, i? What is...
Consider a closed economy as represented by the following equations: C = 100 + .5YD I...
Consider a closed economy as represented by the following equations: C = 100 + .5YD I = 200 + .1Y – 800i T = 200 G = 200 YD = Y - T (1) Derive the IS equation from the equilibrium position of goods market. Draw the IS curve on the graph. (10 points)In the money market, assume the real money demand is (M d/P) = Y – 1,000i; and the real money supply is (Ms/P) = 700. (2) Derive...
The economy of a country is represented by the model below: Goods Market: ++ Consumption function:...
The economy of a country is represented by the model below: Goods Market: ++ Consumption function: C = 15,000 + 0.75(Yd) ++ Investment function: I = 5,000 – 50i ++ Government expenditures: G = 5,000 ++ Export function: X = 5,000 ++ Import function: M = 1,000 + 0.1Y ++ Taxes: T = 1,000 + 0.1Y Money Market: ++ Money Supply: Ms = 30 ++ Money Demand (Transaction): Mdt = 0.25Y ++ Money Demand (Asset): Ma = 2,000 – 20i...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT