Does interest (nominal or real) impact the consumption function in any way? According to literature consumption in the IS-LM model is affected by changes in output Y and taxes T. But in this question as there is an i for the interest included in the equation does that mean (as I am given a nominal interest rate), use it in my calculations? Or is it just written there to test my knowledge?
Does interest (nominal or real) impact the consumption function in any way? According to literature consumption in the IS-LM model is affected by changes in output Y and taxes T. But in this question as there is an i for the interest included in the equation does that mean (as I am given a nominal interest rate), use it in my calculations? Or is it just written there to test my knowledge?
Chapter9: Aggregate Expenditures
Section: Chapter Questions
Problem 12E
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Does interest (nominal or real) impact the consumption function in any way? According to literature consumption in the IS-LM model is affected by changes in output Y and taxes T. But in this question as there is an i for the interest included in the equation does that mean (as I am given a nominal interest rate), use it in my calculations? Or is it just written there to test my knowledge?
![Consider an IS-LM model where the central bank sets the nominal interest rate. The consumption
and investment functions are given by
C = 150+ 0.25(YT) - 100i](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa09cd305-36cf-4f6b-873f-71c7002cbdfa%2F8119cdb6-0350-45d0-9dc0-530d3f6d58e6%2Fegik6mh_processed.png&w=3840&q=75)
Transcribed Image Text:Consider an IS-LM model where the central bank sets the nominal interest rate. The consumption
and investment functions are given by
C = 150+ 0.25(YT) - 100i
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