Question

In: Economics

A. Assume that GDP (Y) is 6,000B. Consumption (C) is given by the equation C =...

A. Assume that GDP (Y) is 6,000B. Consumption (C) is given by the equation C = 600B + 0.8(Y – T). Investment (I) is given by the equation I = 2,000B – 100B(r), where r is the real rate of interest. Taxes (T) are 500B and government spending (G) is also 500B. Show/type your work/calculations!

1. In this economy, compute private savings, public savings, and national savings (6 points)

            Private savings =

            Public savings =

            National savings =

2. Find the equilibrium interest rate, r. Prove that r satisfies the income identity Y = C + I + G. (6 points)

                                                                                   

                                                                                   

3. Suppose G decreases by 200B. Compute private savings, public savings, and national savings (6 points)

Private savings =

            Public savings =

            National savings =

4. Find the new equilibrium interest rate, r, assuming the decrease in G in part 3 above. Prove that this new value of r satisfies the income identity Y = C + I + G. (6 points)

                                                                                    

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

(15pt) Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C =...
(15pt) Assume that GDP (Y) is 5,000. 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. Here, notice that C is negatively related to the real interest rate. a)What are the equilibrium values of C, I, and r? (3pt) b)What are the...
Assume that GDP (Y) is 10,000. Consumption (C) is given by the equation C = 500...
Assume that GDP (Y) is 10,000. Consumption (C) is given by the equation C = 500 + 0.8(Y – T). Investment (I) is given by the equation I = 2,000 – 50r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500. a. What are the equilibrium values of C, I, and r? (Show your work) (4.5 marks) b. What are the values of private saving, public saving, and...
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...
Assume that the consumption function is given by C = 200 + 0, 75(Y − T)....
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...
In the Keynesian cross model, assume that the consumption function is given by C=120+0.8(Y-T)
solve the following:a. In the Keynesian cross model, assume that the consumption function is given by C=120+0.8(Y-T). Planned investment is 200; government purchases and taxes are both 400. Y, C, I G&T are all in billions. i Graph planned expenditure as a function of income. ii. What is equilibrium income? iii. If government purchases increase to 420, what is the new equilibrium income? What is the multiplier for government purchases? iv. What level of government purchases is needed to achieve an income of 2,400? (Taxes remain...
In the Keynesian cross, assume that the consumption function is given by: C(Y-T)=210+0.5(Y-T) and government purchases...
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...
If the consumption function is given by the equation C = 500 +0.5Y, the production...
If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K = 100 and L = 100, then C equals:3,000.5,000.2,500.1,000.
1. GDP (Y) = C + I + G Consumption = 10 + .75Y Investment =...
1. GDP (Y) = C + I + G Consumption = 10 + .75Y Investment = 20 + .15Y Government = 35 The size of the expenditure multiplier for this hypothetical economy is a. 4. b. 10. c. 2. d. none of the other answers are correct. 2. Find the level of equilibrium income, given the following values for the economy: Consumption = 10 + .75Y Investment = 20 + .15Y Autonomous Taxes = 20 Government = 30 a. 180...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT