The following equations describe a small economy. Figures are in millions of dollars; interest rate (i) is in percent per annum. Assume that the price level (P) is fixed. Goods Market C = Co + cYD (Private consumption) YD = Y + TR – T (Disposable income) T = To + tY (Total taxes) I = Io – bi (Private investment) G = Go, TR = TRo (Gov. Expenditure and Transfers, respectively) Y = C + I + G (Goods mkt. equilibrium condition) Money Market L = kY- hi (Demand for real balances) Ms = Mo/P (Real money supply) L = Ms (Money mkt. equilibrium condition) Endogenous Variables: C, YD T, I, Y, L, Ms and i Exogenous Variables: Co = 300, To = 80, Io = 450, Go = 300, TRo = 100, Mo = 350, P =1 Parameters: c = 0.85, t = 0.15, b = 50, k = 0.25 and h = 62.5 Policy variables: Fiscal policy: (G, t and TR) Monetary policy: (Mo, P) Question 1 Determine the equilibrium level of income (Y*) and rate of interest (i*).
The following equations describe a small economy. Figures are in millions of dollars; interest rate (i) is in percent per annum. Assume that the price level (P) is fixed. Goods Market C = Co + cYD (Private consumption) YD = Y + TR – T (Disposable income) T = To + tY (Total taxes) I = Io – bi (Private investment) G = Go, TR = TRo (Gov. Expenditure and Transfers, respectively) Y = C + I + G (Goods mkt. equilibrium condition) Money Market L = kY- hi (Demand for real balances) Ms = Mo/P (Real money supply) L = Ms (Money mkt. equilibrium condition) Endogenous Variables: C, YD T, I, Y, L, Ms and i Exogenous Variables: Co = 300, To = 80, Io = 450, Go = 300, TRo = 100, Mo = 350, P =1 Parameters: c = 0.85, t = 0.15, b = 50, k = 0.25 and h = 62.5 Policy variables: Fiscal policy: (G, t and TR) Monetary policy: (Mo, P) Question 1 Determine the equilibrium level of income (Y*) and rate of interest (i*).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The following equations describe a small economy. Figures are in millions of dollars; interest rate (i) is in percent per annum. Assume that the price level (P) is fixed.
Goods Market
C = Co + cYD (Private consumption)
YD = Y + TR – T (Disposable income)
T = To + tY (Total taxes)
I = Io – bi (Private investment)
G = Go, TR = TRo (Gov. Expenditure and Transfers, respectively)
Y = C + I + G (Goods mkt. equilibrium condition)
Money Market
L = kY- hi (Demand for real balances)
Ms = Mo/P (Real money supply)
L = Ms (Money mkt. equilibrium condition)
Endogenous Variables: C, YD T, I, Y, L, Ms and i
Exogenous Variables: Co = 300, To = 80, Io = 450, Go = 300, TRo = 100, Mo = 350, P =1
Parameters: c = 0.85, t = 0.15, b = 50, k = 0.25 and h = 62.5
Policy variables: Fiscal policy: (G, t and TR) Monetary policy: (Mo, P)
Question 1 Determine the equilibrium level of income (Y*) and rate of interest (i*).
Question 2: Draw the graph of IS and LM and show the equilibrium of the economy
Question 3 Complete National Accounting Matrix
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