11. A closed economy has the following parameters and functions that describe its components: • Consumption function: C = 180 +0.7(Y – T) • Desired investment function: = 120 - 18r - 0.1Y • Tax: T=400 • Government purchases of goods and services: G= 500 • Real money demand: L = 6Y - 120i • Real money supply: M/P = 5400 In money market, MIP = L. Assume the price level P= 1. Assume no inflation is expected. Build the IS-LM model and find the equilibrium level of real interest rate and real GDP.

11. A closed economy has the following parameters and functions that describe its components: • Consumption function: C = 180 +0.7(Y – T) • Desired investment function: = 120 - 18r - 0.1Y • Tax: T=400 • Government purchases of goods and services: G= 500 • Real money demand: L = 6Y - 120i • Real money supply: M/P = 5400 In money market, MIP = L. Assume the price level P= 1. Assume no inflation is expected. Build the IS-LM model and find the equilibrium level of real interest rate and real GDP.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

An economy has full-employment output of 9000, and government purchases are 2000. Desired consumption and desired investment are as follows: Real Interest Desired Desired Rate (%) Consumption Investment 2 6100 1300 6000 1200 4 5900 1100 5 5800 1000 6 5700 900 If the goods market is in equilibrium, what are the values of the real interest rate, desired national saving, and desired investment? r = %. (Enter your answer as a whole number.) (Enter your answer as a whole number.) %3D
3
(1)The following macroeconomic model describes the economy of Sunderland. 1. Y C + I + G + NX Income Identity 2. C= 220 + 0.63 Y 3. I= 1000 - 2000R Consumption function Investment function 4. G Go Government Expenditure Net export function Money market equilibrium 5. NX = 525 -0.10Y-500R 6. M (0.1583Y- 1000R)P (a)ls it a fair characterization to refer to equation #2 as a "simple" consumption function? Explain. (b)Derive the expression for equilibrium real output, Y, for this economy. Note: In your final expression for Y, restrict coefficient values to three decimal points. (c) Suppose government spending is 1200, money supply by the Central Bank is 900 and the price level is 1, find the value of GDP (Y) and equilibrium interest rate (R) for Sunderland.
1. Consider a model of a goods market in a closed economy that is characterized by the followingequations:Consumption : C = 160 + 0.6(Y −T )Investment : I = 150Taxes : T = 100Government spending : G = 110EQ Output : Y = 1/(1 −c1)[c0 + I + G −c1T](a) Solve for the output in the economy.(b) Compute the sum of private and public saving.(c) Considering your answer to part b and the information given above, is this economy in equilib-rium? Explain.
2. Assume a closed economy where the consumption, investment, and government expenditure are C = 350 + 0.3Y; | = 120 - 40r; G = 120 II What is the value of real interest rate which clears the good market when Y (income ) equal to $ 600. Hint (find IS equation first) * 5.5 5.6 4.25 5.9
2. Suppose Economist in England, a closed economy, have collected the following information about the economy for a particular year: GDP equals 10.000 Consumption equals 6.000 Tax revenue equals 1.500 Government purchases equals 1.700 The economist also estimate that the investment function is I = 3.300 – 100r Where r is the country's real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrum interest rate.
Economists in Pakland, a closed economy, have collected the following information about the economy for a particular year: Y = Rs.10,500 C = Rs.6,000 T = Rs.1,500 G = Rs.1,700 The economists also estimate that the investment function is: I = 3,300 - 100r Where, r is the country’s real interest rate, expressed as a percentage. Calculate: Private savingBlank 1(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)Public savingBlank 2(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)National savingBlank 3(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)InvestmentBlank 4The equilibrium real interest rateBlank 5(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)If the government increases taxes to Rs.1,800, calculate private savingBlank 6((Write Only numbers in the…
1) In the loanable funds market model, assuming everything else is constant, which curve (supply of funds or demand for funds) is affected if there is an increase in national saving? How will equilibrium real interest rate and equilibrium quantity of loans change as a result?
Consider an economy described by the following equations: Y = C+I+G Y = 5000 G = 1000 T = 1000 C = 250 + 0.75(Y-T) I = 1000 - 50r In this economy, compute private saving, public saving, and national saving. Find equilibrium interest rate. Now suppose that G rises to 1250. Compute private saving, public saving, and national saving. Find the new equilibrium interest rate. Using your knowledge of Macroeconomics and intuition explain the reason why increasing government expenditure causes interest rate to rise? If the government wants to increase the amount of savings in the economy, how should it alter government spending? What effect will this action have on the interest rate in the economy?
Consider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rb. Calculate the equilibrium interest rate. c. Now suppose the G rises by 1,000. Compute private saving, public saving, andnational saving.d. Calculate the new equilibrium interest rate.For these 3 questions please only show the graphical response.
Consider an economy described by the following equations: Y = C + I + G Y = 6100 G = 1100 T = 1100 C = 1000 + .75(Y - T) I = 1100 - 60r in this economy compute private savings, public savings and national savings Find the equilibrium interest rate Now suppose that G rises to 1200. Compute private savings, public savings and national savings. Find the new equilibrium interest rate.
1. Consider an economy described by the following data (in $ trillion): Č- 3.25; i- 1.3 ; G= 3.5: T-3.0; NX = -1.00; 7 = 1; mpc= 75; a= 0.3; 6=0.1 a. Drive a simplified expressions for the consumption function, the investment function, and the net export function. a. Drive the expression for the IS curve. b. If the real interest rate is r=2, what is the equilibrium output? If r= 5, what the equilibrium output? c. Draw the graph of the IS curve showing the answers from part (c) above. d. If government purchases increase to $4.2 trillion, what will happen to equilibrium output at r=27 What will happen to equilibrium output at r 5? Show the effect of the increase in government purchases in your graph from (d).