Consider an economy that is characterized by the following equations: C = 150 + 0.65(Y – T) – 200r T = 100 + 0.2Y (Consumption) (Taxation) (Investment Demand) (Government Expenditure) (Exports) (Imports) I = 200 – 200r G = 500 X = 100 IM = 150 + 0.1(Y – T) – 100r L = -25 + 0.5Y - 500r M = 133,200 (Money Demand) (Money Supply) pSR = 120 (Short-Run Price Level) Answer each of the following questions. In your answers, be sure to state any assumptions that you impose and provide an explanation.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider an economy that is characterized by the following equations:
C = 150 + 0.65(Y - T) – 200r
(Consumption)
(Тахation)
(Investment Demand)
(Government Expenditure)
(Exports)
(Imports)
T = 100 + 0.2Y
I = 200
G = 500
- 200r
X = 100
IM = 150 + 0.1(Y – T) – 100r
(Money Demand)
(Money Supply)
L = -25 + 0.5Y - 500r
M =
133,200
pSR = 120
(Short-Run Price Level)
Answer each of the following questions. In your answers, be sure to state any assumptions that
you impose and provide an explanation.
Derive the AD and SRAS curves.
Solve for the short-run equilibrium in the AD-SRAS model. Is your solution the same as
in part 3 above? Why or why not?
Is the fiscal multiplier in this economy larger or smaller than if the asset market were not
accounted for in the model? Briefly explain.
True or false? The aggregate demand curve is downward-sloping because the demand for
goods and services increases as the price decreases. Briefly explain.
Transcribed Image Text:Consider an economy that is characterized by the following equations: C = 150 + 0.65(Y - T) – 200r (Consumption) (Тахation) (Investment Demand) (Government Expenditure) (Exports) (Imports) T = 100 + 0.2Y I = 200 G = 500 - 200r X = 100 IM = 150 + 0.1(Y – T) – 100r (Money Demand) (Money Supply) L = -25 + 0.5Y - 500r M = 133,200 pSR = 120 (Short-Run Price Level) Answer each of the following questions. In your answers, be sure to state any assumptions that you impose and provide an explanation. Derive the AD and SRAS curves. Solve for the short-run equilibrium in the AD-SRAS model. Is your solution the same as in part 3 above? Why or why not? Is the fiscal multiplier in this economy larger or smaller than if the asset market were not accounted for in the model? Briefly explain. True or false? The aggregate demand curve is downward-sloping because the demand for goods and services increases as the price decreases. Briefly explain.
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