Can someone explain to me how they got the answer? Suppose there is a negative output gap of 12 (the output gap is the difference between current output and desiredoutput). The current real interest rate, r, is 0.05 and the investment function reads I1 = 20- 200r. The mpc is 0.5. By howmuch should the central bank decrease the real rate to close the output gap? Answer up to two decimal points0.03

Given information:There is a negative output gap of 12. In order to close the output gap, the output…

Answered: Suppose there is a negative output gap…

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Inflation

Section: Chapter Questions

Problem 12SQ

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Consider the following functions for consumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate? Answer all four.
The following set of equations describe an economy:C= 15,000 + 0.75(Y – T) – 45,000rIp= 10,000 – 22,500rG= 8,200NX= 1,800T= 8,500Y*= 82,100Find PAE equation and what should be the interest rate to eliminate the outputgap.
nheducation.com/flow/connect.html 10 Homework Saved Help Save & E Refer to the table below and suppose that the real interest rate is 6 percent. Next, assume that some factor changes such that the expected rate of return declines by 2 percentage points at each prospective level of investment. Cumulative Amount of Investment Having This Rate of Return or Higher (Billions per Year) Real Interest Rate (i) and Expected Rate of Return (r) 16% $0 14 5 12 10 10 15 20 25 30 4 35 2 40 0 Instructions: Enter your answer as a whole number a. Assuming no change in the real interest rate, by how much and in what direction will investment change? Next 12 of 16
Consider a closed economy with output of $200M, Consumption of $150M, and Government spending of $45M. If the investment function is I = 50 – r (in millions), what will the equilibrium interest rate be?
Economists in Pakland, a closed economy, have collected the following information about the economy for a particular year: Y = Rs.10,500 C = Rs.6,000 T = Rs.1,500 G = Rs.1,700 The economists also estimate that the investment function is: I = 3,300 - 100r Where, r is the country’s real interest rate, expressed as a percentage. Calculate: Private savingBlank 1(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)Public savingBlank 2(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)National savingBlank 3(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)InvestmentBlank 4The equilibrium real interest rateBlank 5(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)If the government increases taxes to Rs.1,800, calculate private savingBlank 6((Write Only numbers in the…
Assume that a nation has an output level of 250 units per year and that consumption is also 250. Suppose there is a sudden temporary drop in GDP by 18%. What does the long-run consumption path look like if this country has access to global financial markets with an interest rate of 7%?
Given the following informations; Consumption(C) 800+0.9Y, Where Y-Income Investment (I) =8000-800r, where r=interest rate Money Supply (Ms) =28500 Demand for Money (Md) =0.75Y-1500r and if the autonomous Investment decreased then %3D income decreased and interest rate increased. income increased and interest rate decreased. O income decreased and interest rate decreased income increased and interest rate increased
please answer in text form and in proper format answer with must explanation , calculation for each part and steps clearly
An economy has full-employment output of 9000, and government purchases are 2000. Desired consumption and desired investment are as follows: Find desired national saving for each value of the real interest rate. Enter your answers in the table below. Real Interest Rate (%) 2 3 4 5 6 (Enter your answer as a whole number.) Desired Consumption 6100 6000 5900 5800 5700 Desired Investment 1500 1400 1300 1200 1100 If the goods market is in equilibrium, what are the values of the real interest rate, desired national saving, and desired investment? r= %. (Enter your answer as a whole number.) so = Desired Saving
22. What could have caused the Investment function to move from I1 to I2? 23. Assuming that the Investment function moves from I1 to I2, and assuming the market rate of interest in at 15%, by how much would investment spending decrease?
Selim has no income in period 1 (consumption now) and an income of 1800Ł in period 2 (consumption later). The current interest rate is 20% (r=0.2) on consumer loans. Based on this information, answer the following questions a. What is the maximum amount that Selim can borrow to spend in period 1? Explain your answer. Can he spend 600 in period 2 and borrow 1000 in period 1?
Suppose that the government creates a disincentive for private saving by increasing the tax that people pay on income from holding stocks and bonds. Construct a well-labeled diagram that depicts the effect of the policy change on the real interest rate and the equilibrium quantity of investment.

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