Question
In: Economics
Question 1. In a closed economy, the consumption function is given by C = 200 +...
Question 1. In a closed economy, the consumption function is given by C = 200 + 0.75(Y-T). The investment function is I = 200 – 25r. Government purchases and taxes are both 100. The money demand function in the economy is (M/P)d = Y – 100r. The money supply M is 1,000 and the price level P is 2.
a. Derive the equations of IS and LM curves.
b. Find the equilibrium interest rate r and the equilibrium level of income Y, given the price is fixed. Graph the IS and LM curves and the equilibrium r and Y.
c. Derive an equation for the aggregate demand curve in this economy.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
In a closed economy, given the following: The consumption function C = 0.8(1 – 0.25) Y...
In a closed economy, given the following:
The consumption function C = 0.8(1 – 0.25) Y +
12
The average tax rate t = 25%
The level of private investment I = 26
The level of government spending G = 14
Where Y is the national income.
Calculate the equilibrium level of income and output in the
economy.
Calculate the expenditure multiplier and show the effect
of
an increase in government spending and
an increase in private investment.
Given the...
Suppose a closed economy has an aggregate consumption function given by C = 200 + 0.50Yd and generates $2400 output and income in equilibrium
2Suppose a closed economy has an aggregate consumption function
given by C = 200 + 0.50Yd and generates $2400 output and income in
equilibrium. Suppose also that the government collects a lump-sum
tax of 100.How much will the private sector be saving total in
equilibrium?3Suppose a closed economy generates $2500 output and income in
equilibrium. Suppose also that the government spends 350 and
imposes a lump-sum tax of 100.By how much is the government in deficit?
Assume that GDP (Y ) is 5,000 in a closed economy. Consumption (C) is given by...
Assume that GDP (Y ) is 5,000 in a
closed economy. Consumption (C) is given by the equation C =
1,200+0.3(Y −T)−50r, where r is the real interest rate, in percent.
Investment (I) is given by the equation I = 1, 500 − 50r. Taxes (T
) are 1,000, and government spending (G) is 1,500.
(a) What are the equilibrium values of
C, I, and r?
(b) What are the values of private
saving, public saving, and national saving? (...
1. Assume that the consumption function is given by C = 200 + 0.5(Y – T)...
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)...
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...
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...
Consider an economy with the following characteristics: · Consumption function is C = 200 + 0.8Y;...
Consider an economy with the following characteristics:
· Consumption function is C = 200 + 0.8Y;
· Planned investment: I = 50;
· Government expenditure: G = 50;
· Exports of the country: X = 20
· The import function: M = 10 + 0.1Y.
· Assume there are no transfer payments and no autonomous
taxes.
All variables are in billions of dollars. C is consumption
expenditure; Y is real GDP; G is government purchases of goods and
services; I...
V+Consider a closed economy with fixed prices and wages. Suppose the consumption function is given by...
V+Consider a closed economy with fixed prices and wages. Suppose
the consumption
function is given by
? = 50 + 0.5?
?
where C is consumption and ?
?
is disposable income. The investment function is
given by
? = 30 − 5?
where I is investment and r is the interest rate. The demand for
money is given by
?/? = 200 + 2? − ℎ?
where M is the amount of money demanded, P is the price level,...
Consider the following closed Keynesian economy: Desired consumption and investment are given by: Cd = 200+0.8(Y...
Consider the following closed Keynesian economy:
Desired consumption and investment are given by:
Cd = 200+0.8(Y −T)−500r
Id = 200 − 500r. Taxes and government expenditures are given
by
The real money demand is
T = 20+0.25Y G = G=196.
Md
P = 0.5Y − 250(r + πe).
The money supply M = 9890 and the expected inflation πe =
0.10.
(a) Derive the equations for the IS and LM curves and show them on
a (Y, r) graph.
(b)...
7. Consider the following income-expenditure model of a closed economy. The aggregate consumption function is C...
7. Consider the following income-expenditure model of a closed
economy. The aggregate consumption function is C = 100 +0.8(Y – T);
taxes are T = 380; investment, I, is 300 and government
expenditure, G, is 200.
(a) Calculate the multiplier, equilibrium income and the
government budget surplus [6 marks]
(b) Now let taxes, T = 10 + 0.25Y. Recalculate the multiplier,
equilibrium income and the government budget surplus. Try to
explain any differences between your answers and your answers to...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Describe a time when someone did not really listen to or understand a point you were...
- Enumerations Create an advanced enumeration to represent months (JANUARY – DECEMBER) called enuMonths Add internal properties...
- What is the minimum size of the automorphism group of a simple directed graph having more...
- The birthday paradox says that the probability (chance) that two people in a room will have...
- #include <iostream> #include "lib.hpp" using namespace std; int main() { // declare the bool bool...
- Why do we compare means instead of individual scores? for comparing average SAT test scores across...
- NPV Your division is considering two projects with the following cash flows (in millions): 0...
ADVERTISEMENT