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Suppose there is a negative output gap of 12 (the output gap is the difference between current output and desired output). The current real interest rate, r, is 0.05 and the investment function reads I=20-200r. The mpc is 0.5. By how much should the central bank decrease the real rate to close the output gap? Answer up to two decimal points

Suppose there is a negative output gap of 12 (the output gap is the difference between current output and desired output). The current real interest rate, r, is 0.05 and the investment function reads I=20-200r. The mpc is 0.5. By how much should the central bank decrease the real rate to close the output gap? Answer up to two decimal points

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose there is a negative output gap of 12 (the output gap is the difference between current output and desired output). The current real interest rate, r, is 0.05 and the investment function reads I1 = 20- 200r. The mpc is 0.5. By how much should the central bank decrease the real rate to close the output gap? Answer up to two decimal points 0.03
Transcribed Image Text:Suppose there is a negative output gap of 12 (the output gap is the difference between current output and desired output). The current real interest rate, r, is 0.05 and the investment function reads I1 = 20- 200r. The mpc is 0.5. By how much should the central bank decrease the real rate to close the output gap? Answer up to two decimal points 0.03
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