Consider an economy described by the following equations: Y = C+I+G C = 150 + 0.6 x (Y - T) I = 500 – 50 x r G = 200 T = 150 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 fl employment (that is, at the natural rate of output), GDP would be $1,400. Identify the equation(s) each of the following statements describes. Check all that apply. Statement C T It is an autonomous amount, independent of other factors. It is a function of disposable income. It depends on the interest rate. 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 2%, so r = 2. When the interest rate is 2%, GDP is S GDP at an interest rate of 2% is the full-employment level. Assuming no change in monetary policy, in government purchases by $ would restore GDP to the full-employment level. (Note: Assume that this change in fiscal policy has no crowding-out effect.) Assuming no change in fiscal policy, in the interest rate by % would restore GDP to the full-employment level. O O O O O 0

Consider an economy described by the following equations: Y = C+I+G C = 150 + 0.6 x (Y - T) I = 500 – 50 x r G = 200 T = 150 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 fl employment (that is, at the natural rate of output), GDP would be $1,400. Identify the equation(s) each of the following statements describes. Check all that apply. Statement C T It is an autonomous amount, independent of other factors. It is a function of disposable income. It depends on the interest rate. 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 2%, so r = 2. When the interest rate is 2%, GDP is S GDP at an interest rate of 2% is the full-employment level. Assuming no change in monetary policy, in government purchases by $ would restore GDP to the full-employment level. (Note: Assume that this change in fiscal policy has no crowding-out effect.) Assuming no change in fiscal policy, in the interest rate by % would restore GDP to the full-employment level. O O O O O 0

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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