Question

In: Economics

Suppose you are given the following macroeconomics data (in million): Aggregate Demand:                            

Suppose you are given the following macroeconomics data (in million):

Aggregate Demand:                                          AD=C+I+G+NX

Short-run Aggregate Supply (SRAS):                  Y=16,000+7,000P

Long-run Aggregate Supply (LRAS):                  YFE=$74,000

Where,

  1. YFE is real GDP at full employment or the natural rate of unemployment.
  2. P is the aggregate price level.
  3. Consumption spending:             C=10,000+0.8YD-200P
  4. I = $4,400                     G = $2,000       T = $2,000                           NX = $1,200

1. Find the equation for the AD curve for this economy.

2. Find the short-run equilibrium level of real GDP (YSR) and the aggregate price level (P).

3. Draw a graph representing the AD curve, the SRAS curve, and the LRAS curve. Provide a brief

    comment on this graph.

Suppose you wish to return this economy to its real GDP at full employment through tax policy.   

4. Provide a numerical analysis for this policy.

5. Calculate the value of public saving. Is the government running budget surplus or budget deficit?

    Explain.

6. Given your answer in question 4, provide an equation for the new Aggregate Demand curve?

7. Explain in words and graphically, what will happen in long run if government decides to do nothing?    

  

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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