4. Consider a closed economy of AU land that can be described by the following functions: All values C, I, and G are in billions of USD. Investment expenditure: lg 500 -50r, where r is real interest rate(in percent) = 3% Government expenditure: G = 125 Lump-sum constant taxes: T = 100 (a) Find the equilibrium Y, C and Ig Consumption expenditure: C = 100 +0.75(Y-T) 6. lintiitch (b) The Bank of Thailand (BOT) has recently announced that consumer confidence in Thailand fell. Let the decrease in consumer confidence to be equal to 10 points, from 100 to 90, so now C= 90+0.75(Y-T). Find the new equilibrium Y. (c) Suppose the Bank of Thailand (BOT) is trying to reverse this adverse effect on the economy. The Bank of Thailand (BOT) can cut the interest rate in order to stimulate investment spending (Ig). The increase in Ig has to be sufficient to push the overall Y level back to the original Y level that you have found in part (a). Solve for this new interest rate. Please leave it as a percent with two decimal places. (d) Based upon your answer in part (c), what should the central bank do with the discount rate (DR) to achieve the target real interest rate? Also, what is the type of such a monetary policy?
4. Consider a closed economy of AU land that can be described by the following functions: All values C, I, and G are in billions of USD. Investment expenditure: lg 500 -50r, where r is real interest rate(in percent) = 3% Government expenditure: G = 125 Lump-sum constant taxes: T = 100 (a) Find the equilibrium Y, C and Ig Consumption expenditure: C = 100 +0.75(Y-T) 6. lintiitch (b) The Bank of Thailand (BOT) has recently announced that consumer confidence in Thailand fell. Let the decrease in consumer confidence to be equal to 10 points, from 100 to 90, so now C= 90+0.75(Y-T). Find the new equilibrium Y. (c) Suppose the Bank of Thailand (BOT) is trying to reverse this adverse effect on the economy. The Bank of Thailand (BOT) can cut the interest rate in order to stimulate investment spending (Ig). The increase in Ig has to be sufficient to push the overall Y level back to the original Y level that you have found in part (a). Solve for this new interest rate. Please leave it as a percent with two decimal places. (d) Based upon your answer in part (c), what should the central bank do with the discount rate (DR) to achieve the target real interest rate? Also, what is the type of such a monetary policy?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![4. Consider a closed economy of AU land that can be described by the following functions:
All values C, I, and G are in billions of USD.
Investment expenditure: lg 500 -50r, where r is real interest rate(in percent) = 3%
Government expenditure: G = 125
Lump-sum constant taxes: T = 100
(a) Find the equilibrium Y, C and Ig
Consumption expenditure: C = 100 +0.75(Y-T)
6.
lintiitch](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe4e12d85-9935-4a88-bdc8-4abdf7970627%2F3123fd76-8c4e-46b5-b530-30506f94a66f%2Fq0eshxw.jpeg&w=3840&q=75)
Transcribed Image Text:4. Consider a closed economy of AU land that can be described by the following functions:
All values C, I, and G are in billions of USD.
Investment expenditure: lg 500 -50r, where r is real interest rate(in percent) = 3%
Government expenditure: G = 125
Lump-sum constant taxes: T = 100
(a) Find the equilibrium Y, C and Ig
Consumption expenditure: C = 100 +0.75(Y-T)
6.
lintiitch
![(b) The Bank of Thailand (BOT) has recently announced that consumer confidence in
Thailand fell. Let the decrease in consumer confidence to be equal to 10 points,
from 100 to 90, so now C= 90+0.75(Y-T). Find the new equilibrium Y.
(c) Suppose the Bank of Thailand (BOT) is trying to reverse this adverse effect on the
economy. The Bank of Thailand (BOT) can cut the interest rate in order to stimulate
investment spending (Ig). The increase in Ig has to be sufficient to push the overall Y
level back to the original Y level that you have found in part (a). Solve for this new
interest rate. Please leave it as a percent with two decimal places.
(d) Based upon your answer in part (c), what should the central bank do with the discount
rate (DR) to achieve the target real interest rate? Also, what is the type of such a
monetary policy?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe4e12d85-9935-4a88-bdc8-4abdf7970627%2F3123fd76-8c4e-46b5-b530-30506f94a66f%2F2sd9h5.jpeg&w=3840&q=75)
Transcribed Image Text:(b) The Bank of Thailand (BOT) has recently announced that consumer confidence in
Thailand fell. Let the decrease in consumer confidence to be equal to 10 points,
from 100 to 90, so now C= 90+0.75(Y-T). Find the new equilibrium Y.
(c) Suppose the Bank of Thailand (BOT) is trying to reverse this adverse effect on the
economy. The Bank of Thailand (BOT) can cut the interest rate in order to stimulate
investment spending (Ig). The increase in Ig has to be sufficient to push the overall Y
level back to the original Y level that you have found in part (a). Solve for this new
interest rate. Please leave it as a percent with two decimal places.
(d) Based upon your answer in part (c), what should the central bank do with the discount
rate (DR) to achieve the target real interest rate? Also, what is the type of such a
monetary policy?
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