(1)Consider the following macroeconomic model of an économy. Y = C+1+G+ NX.... C = 250 + 0.75Y - 500R | = 1000 - 1000R.... (1) (Income Identity) .(2) (Consumption function) (3) (Investment function) .(4) (Government Expenditure) (5) (Net Export function) G = Go.... NX = 500 - 0.10Y - 500R. (a)Briefly explain why interest rate and net export are inversely related in equation 5. (b)Derive the expression for equilibrium real output Y. (c)Determine the value of aggregate real output given that government purchases are 800 and interest rate is 5%. (d)Write the expression for the multiplier and find its value. (e)How much is aggregate consumption and aggregate investment in this economy? (f)Suppose average tax rate is 10% of real output, evaluate the performance of this economy for evidence of a twin deficit.

(1)Consider the following macroeconomic model of an économy. Y = C+1+G+ NX.... C = 250 + 0.75Y - 500R | = 1000 - 1000R.... (1) (Income Identity) .(2) (Consumption function) (3) (Investment function) .(4) (Government Expenditure) (5) (Net Export function) G = Go.... NX = 500 - 0.10Y - 500R. (a)Briefly explain why interest rate and net export are inversely related in equation 5. (b)Derive the expression for equilibrium real output Y. (c)Determine the value of aggregate real output given that government purchases are 800 and interest rate is 5%. (d)Write the expression for the multiplier and find its value. (e)How much is aggregate consumption and aggregate investment in this economy? (f)Suppose average tax rate is 10% of real output, evaluate the performance of this economy for evidence of a twin deficit.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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