Consider an economy described by the following data:C = $3.25 trillionI = $1.3 trillionG = $3.5 trillionT = $3.0 trillionNX = - $1.0 trillionf = 1mpc = 0.75d = 0.3x = 0.1a. Derive simplified expressions for the consumptionfunction, the investment function, and the net exportfunction.b. Derive an expression for the IS curve.c. If the real interest rate is r = 2, what is equilibriumoutput? If r = 5, what is equilibrium output?d. Draw a graph of the IS curve showing the answersfrom part (c) above.e. If government purchases increase to $4.2 trillion,what will happen to equilibrium output at r = 2?What will happen to equilibrium output at r = 5?Show the effect of the increase in government purchases in your graph from part (d).
Consider an economy described by the following data:
C = $3.25 trillion
I = $1.3 trillion
G = $3.5 trillion
T = $3.0 trillion
NX = - $1.0 trillion
f = 1
mpc = 0.75
d = 0.3
x = 0.1
a. Derive simplified expressions for the consumption
function, the investment function, and the net export
function.
b. Derive an expression for the IS curve.
c. If the real interest rate is r = 2, what is equilibrium
output? If r = 5, what is equilibrium output?
d. Draw a graph of the IS curve showing the answers
from part (c) above.
e. If government purchases increase to $4.2 trillion,
what will happen to equilibrium output at r = 2?
What will happen to equilibrium output at r = 5?
Show the effect of the increase in government purchases in your graph from part (d).
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
