5. Problems and Applications Q11 Consider an economy described by the following equations: Y=C+I+G C-120+0.8x (Y-T) I 500-50 XT G=150 T=125 where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at the natural rate of output), GDP would be $2,850. Identify the equation(s) each of the following statements describes. Check all that apply. Statement C I G T It is an autonomous amount, independent of other factors. 0 0 0 0 It is a function of disposable income. 0 0 0 0 It depends on the interest rate. 0 0 The marginal propensity to consume in this economy is Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 3%, so = 3. When the interest rate is 3%, GDP is $ GDP at an interest rate of 3% is the full-employment level. Assuming no change in monetary policy, (Note: Assume that this change in fiscal policy has no crowding-out effect.) in government purchases by $ would restore GDP to the full-employment level. Assuming no change in fiscal policy, in the interest rate by % would restore GDP to the full-employment level.

Essentials of Economics (MindTap Course List)
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Chapter18: Savings,investment And The Financial System
Section: Chapter Questions
Problem 3PA
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5. Problems and Applications Q11
Consider an economy described by the following equations:
Y=C+I+G
C-120+0.8x (Y-T)
I 500-50 XT
G=150
T=125
where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full
employment (that is, at the natural rate of output), GDP would be $2,850.
Identify the equation(s) each of the following statements describes. Check all that apply.
Statement
C
I
G
T
It is an autonomous amount, independent of other factors.
0
0
0
0
It is a function of disposable income.
0
0
0
0
It depends on the interest rate.
0
0
The marginal propensity to consume in this economy is
Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 3%, so = 3.
When the interest rate is 3%, GDP is $
GDP at an interest rate of 3% is
the full-employment level.
Assuming no change in monetary policy,
(Note: Assume that this change in fiscal policy has no crowding-out effect.)
in government purchases by $
would restore GDP to the full-employment level.
Assuming no change in fiscal policy,
in the interest rate by
% would restore GDP to the full-employment level.
Transcribed Image Text:5. Problems and Applications Q11 Consider an economy described by the following equations: Y=C+I+G C-120+0.8x (Y-T) I 500-50 XT G=150 T=125 where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at the natural rate of output), GDP would be $2,850. Identify the equation(s) each of the following statements describes. Check all that apply. Statement C I G T It is an autonomous amount, independent of other factors. 0 0 0 0 It is a function of disposable income. 0 0 0 0 It depends on the interest rate. 0 0 The marginal propensity to consume in this economy is Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 3%, so = 3. When the interest rate is 3%, GDP is $ GDP at an interest rate of 3% is the full-employment level. Assuming no change in monetary policy, (Note: Assume that this change in fiscal policy has no crowding-out effect.) in government purchases by $ would restore GDP to the full-employment level. Assuming no change in fiscal policy, in the interest rate by % would restore GDP to the full-employment level.
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