Problem 14-12 (algo) The following set of equations describe an economy: C = 16,000 + 0.5(YT) - 50,000r IP = 7,000 - 24,000r G = 8,200 NX = 1,800 T = 8,500 Y* = 48,620 a. Find a numerical equation relating planned aggregate expenditure to output and to the real interest rate. PAE= 33000 * 74000 + 0.50 Y b. At what value should the Fed set the real interest rate to eliminate any output gap? (Hint. Set output Yequal to the value of potential output given above in the equation you found in part a. Then solve for the real interest rate that also sets planned aggregate expenditure equal to potential output.) Instructions: Enter your response as a whole number. Real rate of interest: 6 %

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter24: The Aggregate Demand/aggregate Supply Model
Section: Chapter Questions
Problem 24RQ: Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.
Question
Problem 14-12 (algo)
The following set of equations describe an economy:
C = 16,000 + 0.5(YT) - 50,000r
IP = 7,000 - 24,000r
G = 8,200
NX = 1,800
T = 8,500
Y* = 48,620
a. Find a numerical equation relating planned aggregate expenditure to
output and to the real interest rate.
PAE= 33000 *
74000
+
0.50
Y
b. At what value should the Fed set the real interest rate to eliminate any
output gap? (Hint. Set output Yequal to the value of potential output given
above in the equation you found in part a. Then solve for the real interest
rate that also sets planned aggregate expenditure equal to potential output.)
Instructions: Enter your response as a whole number.
Real rate of interest:
6 %
Transcribed Image Text:Problem 14-12 (algo) The following set of equations describe an economy: C = 16,000 + 0.5(YT) - 50,000r IP = 7,000 - 24,000r G = 8,200 NX = 1,800 T = 8,500 Y* = 48,620 a. Find a numerical equation relating planned aggregate expenditure to output and to the real interest rate. PAE= 33000 * 74000 + 0.50 Y b. At what value should the Fed set the real interest rate to eliminate any output gap? (Hint. Set output Yequal to the value of potential output given above in the equation you found in part a. Then solve for the real interest rate that also sets planned aggregate expenditure equal to potential output.) Instructions: Enter your response as a whole number. Real rate of interest: 6 %
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