Assume that specific functional forms are assumed for the consumption functionand the investment demand function:C = c1(Y; – G;) + c2(Y;+1- G++1) – C3riI = -dır: + d2At+1+ d3KtWhere c1, C2, c3, di, dzand d3are fixed parameters governing the sensitivity ofconsumption and investment to different relevant decision factors.a) Find an algebraic expression of the IS (Investment-Savings) curve.b) Use the above expression to find the slope of the IS curve.C) Assume that the parameter values are: C1 = 0.6, c2 = 0.5, c3 = 10, dı = 20, d2 = 1and d3 = 0.5. Assume that Yt+1 = 15, Gt = 10, Gt+1 = 10, At+1 = 5 and Kt = 15.Assume that rt = 0.1. Find the product in the current period.d) Now suppose ri = 0.15. Find the product Y in the current period.(e) Create a range of values of r, between 0.01 to 0.2, with 0.001 intervals betweenvalues. Find Y for each r:using an Excel sheet and draw the IS curve. Does it have theexpected slope? Commentf) Find another version of the IS curve with A t+1 = 7, and graph both curves, forAt+1= 5 and for At+1 = 7. How does the increase in A t+1 impact the position of the IScurve? Explaing) For the IS curve founded at a), assume that the parameter values are c1=0.5, c2=0.4,C3=1, d1=20, d2=0.5 and d3=0.1. Assume further that Y+1 = 1.2, G=0.2, Gt+1=0.2,At+1=1 and K;=15. Find the IS curve.

The IS curve shows all combinations of interest rates and output levels that result in equilibrium…

Assume that specific functional forms are assumed for the consumption function and the investment demand function: Ct = C₁ (Yt − Gt) + C₂ (Yt+1 − Gt+1) − C3rt It = −d₁rt + d₂At+1 +d3Kt Where C1, C2, C3, d1, d2 and d3 are fixed parameters governing the sensitivity of consumption and investment to different relevant decision factors. a) Find an algebraic expression of the IS (Investment-Savings) curve. b) Use the above expression to find the slope of the IS curve. c) Assume that the parameter values are: c₁ = 0.6, c₂= 0.5, c3 = 10, d₁ = 20, d₂ = 1 and d3= 0.5. Assume that Yt+1 = 15, Gt = 10, Gt+1 = 10, At+1 = 5 and Kt = 15.

Assume that specific functional forms are assumed for the consumption function and the investment demand function: Ct = C₁ (Yt − Gt) + C₂ (Yt+1 − Gt+1) − C3rt It = −d₁rt + d₂At+1 +d3Kt Where C1, C2, C3, d1, d2 and d3 are fixed parameters governing the sensitivity of consumption and investment to different relevant decision factors. a) Find an algebraic expression of the IS (Investment-Savings) curve. b) Use the above expression to find the slope of the IS curve. c) Assume that the parameter values are: c₁ = 0.6, c₂= 0.5, c3 = 10, d₁ = 20, d₂ = 1 and d3= 0.5. Assume that Yt+1 = 15, Gt = 10, Gt+1 = 10, At+1 = 5 and Kt = 15.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Assume that specific functional forms are assumed for the consumption function
and the investment demand function:
C = c1(Y; – G;) + c2(Y;+1- G++1) – C3ri
I = -dır: + d2At+1+ d3Kt
Where c1, C2, c3, di, dzand d3are fixed parameters governing the sensitivity of
consumption and investment to different relevant decision factors.
a) Find an algebraic expression of the IS (Investment-Savings) curve.
b) Use the above expression to find the slope of the IS curve.
C) Assume that the parameter values are: C1 = 0.6, c2 = 0.5, c3 = 10, dı = 20, d2 = 1
and d3 = 0.5. Assume that Yt+1 = 15, Gt = 10, Gt+1 = 10, At+1 = 5 and Kt = 15.
Assume that rt = 0.1. Find the product in the current period.
d) Now suppose ri = 0.15. Find the product Y in the current period.
(e) Create a range of values of r, between 0.01 to 0.2, with 0.001 intervals between
values. Find Y for each r:using an Excel sheet and draw the IS curve. Does it have the
expected slope? Comment
f) Find another version of the IS curve with A t+1 = 7, and graph both curves, for
At+1= 5 and for At+1 = 7. How does the increase in A t+1 impact the position of the IS
curve? Explain
g) For the IS curve founded at a), assume that the parameter values are c1=0.5, c2=0.4,
C3=1, d1=20, d2=0.5 and d3=0.1. Assume further that Y+1 = 1.2, G=0.2, Gt+1=0.2,
At+1=1 and K;=15. Find the IS curve.

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