Question

The next 5 questions (11-15) can be answered using the following information:

C(Y-T) = 125 + 0.75(Y-T)

I = 200 – 10r

G=150

T = 100

Ms= 800

Md= 0.8Y – 16r

Assume that the full-employment level of output equals 1,600

1. Calculate the IS curve
   1. r=40-0.025Y
   2. Y=1600-40r
   3. r=50-0.75Y
   4. a and b
   5. None of the above

2. Calculate the short-run equilibrium for this economy
   1. Y*=1200 and r*=15
   2. Y*=2000 and r*=10
   3. Y*=2000 and r*=15
   4. Y*=1200 and r*=10
   5. None of the above

3. Suppose that there is expansionary fiscal policy and G increases to G’=250. The new equilibrium is given by
   1. Y*=1200 and r*=15
   2. Y*=1333,3 and r*=10
   3. Y*=1333,3 and r*=16.7
   4. Y*=1000 and r*=20
   5. None of the above

4. What is the size of the fiscal policy multiplier?
   1. 2.33
   2. 1.5
   3. 4
   4. 1.33
   5. None of the above

5. What is the level of the long-run equilibrium in this economy?
   1. Y*=1600 and r*=15
   2. Y*=1200 and r*=10
   3. Y*=1600 and r*=10
   4. Y*=1000 and r*=20
   5. None of the above

Answer 1