Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i. Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100. Required (a.) Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (b.) Suppose government purchases decline to 450. What happens to the variables listed in part (a)? (c.) Suppose government purchases rise to 650. What happens to the variables listed in part (a)?
Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i. Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100. Required (a.) Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (b.) Suppose government purchases decline to 450. What happens to the variables listed in part (a)? (c.) Suppose government purchases rise to 650. What happens to the variables listed in part (a)?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is
I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i.
Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100.
Required
(a.) Find the equilibrium values of the real interest rate, consumption, investment, and the price level.
(b.) Suppose government purchases decline to 450. What happens to the variables listed in part (a)?
(c.) Suppose government purchases rise to 650. What happens to the variables listed in part (a)?
(d.) What feature in this example leads to the result that you don’t need to know the amount of taxes collected by the government to find the equilibrium?
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