Q.4. Suppose the following functions are estimated for Pakistan economy. The consumption function is G= 200 + 0.75(Y T). The investment function is I= 200 – 25 whereaS Government purchases and taxes are both 100b. The money demand function in Pakistan is a. Find the equilibrium interest rate Pand the equilibrium level of income Show in dingram. 100. The money supply is 1,000b and the price level Pis 2. b. Suppose that the price level rises from 2 to 4. What are the new equilibrium interest rate and level of income? Show the effect of price increase in the graph drawn in part a c. Derive the equation for the aggregate demand curve. What happens to this aggregate demand curve if tight monetary policy is applied? Graphically Explain.

Q.4. Suppose the following functions are estimated for Pakistan economy. The consumption function is G= 200 + 0.75(Y T). The investment function is I= 200 – 25 whereaS Government purchases and taxes are both 100b. The money demand function in Pakistan is a. Find the equilibrium interest rate Pand the equilibrium level of income Show in dingram. 100. The money supply is 1,000b and the price level Pis 2. b. Suppose that the price level rises from 2 to 4. What are the new equilibrium interest rate and level of income? Show the effect of price increase in the graph drawn in part a c. Derive the equation for the aggregate demand curve. What happens to this aggregate demand curve if tight monetary policy is applied? Graphically Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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