Question

In: Economics

Suppose that a hypothetical economy is characterized by the following equations: C = 200 + 0.75(Y-T)...

Suppose that a hypothetical economy is characterized by the following equations:

C = 200 + 0.75(Y-T)

I = 200 – 25r

G = 100

T = 100

MS = 1,000

P = 2

(M/P)d = Y – 100r

  1. Use the above information to obtain an expression for the IS curve (write Y as a function of the interest rate).
    1. mathematical procedure

  1. Explanation
  1. Assuming that P is fixed at 2, obtain an expression for the LM curve (again, write Y as a function of r).
    1. mathematical procedure
  1. explanation

  1. Find the equilibrium level of Y and r.
    1. mathematical Procedure

  1. explanation

  1. Suppose that the government increases G to 150. By how much the IS curve will shift? What are the new levels of Y and r?
    1. mathematical procedure

  1. explanation
  1. Suppose that after the increase in G, the Belize Central Bank raises the money supply to 1,200. What are the new equilibrium values of r and Y?
    1. Mathematical Procedure

  1. explanation

Solutions

Expert Solution

Page numbers are given at the top of the page, follow them.

Rahul Sunny answered 1 week ago
Next > < Previous

Related Solutions

A small open Economy is described by the following equations: C= 50 + 0.75(Y – T),...
A small open Economy is described by the following equations: C= 50 + 0.75(Y – T), I = 200-20r, NX = 200-e, M/P = Y-40r, G= 200, T = 200, M = 3,000, P = 3, and r* = 5 A. Drive the IS* and LM* equations B. Calculate the equilibrium Exchange Rate, level of income, and net exports C. Assume a floating exchange rate, calculate what happens to exchange rate , the level of income, net exports, and money...
Suppose that the following equations govern planned spending in the US: C = 500 + 0.75(Y-T)...
Suppose that the following equations govern planned spending in the US: C = 500 + 0.75(Y-T) T = 0.2Y – 800 I = 3000 – 64000r G = 3200 NX = 1000 – 10e (e =“trade weighted” real ex. rate. As always, increase in e = $ appreciation) NFO = 500 – 60000(r – r FOR) r FOR = 3% a) Explain how NFO responds to an increase in the Home interest rate, and an increase r FOR, based on...
Consider the economy described by the following equations: Y = 2400; C = 100 + 0.75(Y...
Consider the economy described by the following equations: Y = 2400; C = 100 + 0.75(Y – T) – 10r; I = 450 – 15r; G = 250; NX = 0; T = 0; Use the information above to calculate an expression (equation) for national saving S as a function of the real interest rate r. Calculate the goods market equilibrium real interest rate, and levels of desired national saving and investment, and consumption. Calculate government (or public) saving. Comment...
Consider an economy described by the following equations: Y=C+I+G+NX, Y=8,000 G=2,500 T=2,000 C=500 + 0.75(Y−T) I=900−50r...
Consider an economy described by the following equations: Y=C+I+G+NX, Y=8,000 G=2,500 T=2,000 C=500 + 0.75(Y−T) I=900−50r NX=1,500−250ϵ r=r∗=8. In this economy, solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate. Suppose now that G is cut to 2,000. Solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. Now suppose that the world interest rate falls from 8 to 3 percent....
Consider an economy described by the following equations: Y=C+I+G+NX, Y=8,000 G=2,500 T=2,000 C=500 + 0.75(Y−T) I=900−50r...
Consider an economy described by the following equations: Y=C+I+G+NX, Y=8,000 G=2,500 T=2,000 C=500 + 0.75(Y−T) I=900−50r NX=1,500−250ϵ r=r∗=8. a. In this economy, solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate. b. Suppose now that G is cut to 2,000. Solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. c. Now suppose that the world interest rate falls from 8...
Given an economy described by the following set of equations. Y = C(Y - T) +...
Given an economy described by the following set of equations. Y = C(Y - T) + I(r) + G C = 200 + 0.80(Y - T) I = 300 - 2r G = 400 T = 200 (M/P)d = 0.80Y - 8r Ms = 5,600 Price-level = P = 2 What is the equilibrium interest rate? (Same setup as above) Given an economy described by the following set of equations. Y = C(Y - T) + I(r) + G C...
Suppose that the following equations describe an economy (C,I,G,T, and Y are measured in billions of...
Suppose that the following equations describe an economy (C,I,G,T, and Y are measured in billions of dollars, and r is measured as a percent; for example, r = 10 = 10%): C = 170+.6(Y-T) T = 200 I = 100-4r G = 350 (M/P)d= L = .75Y – 6r Ms/P = M/P = 735 a.   Derive the equation for the IS curve and explain all your work. (Hint: It is easier to solve for Y here.) b.   Derive the equation...
An economy is described by the following equations: C = 40 + 0.8 (Y – T)...
An economy is described by the following equations: C = 40 + 0.8 (Y – T) I = 70 G = 120 NX = 10 T = 150 a. When Y = 600, aggregate expenditure is . b. Consumers and businesses alike become more pessimistic about the future and reduce their respective expenditures by 10 each. Immediately following this change, what is aggregate expenditure if Y is still 600? (In other words, what is the initial change in aggregate expenditure?)...
An economy is described by the following equations: C = 3000 + 0.5 (Y – T)...
An economy is described by the following equations: C = 3000 + 0.5 (Y – T) Ip = 1500 G = 2500 NX = 200 T = 2000 Y* = 12000 a. For the economy, find the following: autonomous expenditure, the multiplier, short- run equilibrium output, and the output gap if any. b. Illustrate this economy’s short-run equilibrium on a Keynesian-cross diagram. c. Calculate the amount by which autonomous expenditure would have to change to eliminate the output gap if...
An economy is described by the following equations: C = 100 + 0.8 (Y – T)...
An economy is described by the following equations: C = 100 + 0.8 (Y – T) I p = 80 G = 140 NX = 20 T = 170 Y* = 980 The multiplier in this economy is 5. a. Find a numerical equation relating planned aggregate expenditure to output. Instruction: Enter your response for mpc rounded to one decimal place. PAE = + Y. b. Construct a table to find the value of short-run equilibrium output. Instruction: If you...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT