MACROECONOMICS
MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
Question
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Chapter 13, Problem 8TY

a)

To determine

To calculate: The equilibrium GDP.

a)

Expert Solution
Check Mark

Answer to Problem 8TY

The equilibrium level of GDP is derived as $5,192 for the rate of interest at 2 percent (r=0.02)

Explanation of Solution

Substituting the values of rate of interest 2 percent (r=0.02)

in the investment function and the total investment is being calculated as follows:

  I=1,000100r   =1,000100(r)   =1,0002   = 998

The equilibrium level of GDP is derived as follows:

  Y=(300+0.75Y)+998+0+0   =300+0.75Y+998   =1,298+0.75Y

By bringing the variable Y

to the left hand side:

    Y0.75Y=1,298Y(10.75)=1,298        0.25Y=1,298               Y=12980.25               Y= 5,192

Therefore, the equilibrium level of GDP is $5,192 at rate of interest 2 percent (r=0.02) .

Economics Concept Introduction

Introduction: The Gross Domestic Product (GDP) is the summation of market values, which includes the final services and goods for a period of time, in an economy.

b)

To determine

To Calculate: The equilibrium GDP.

b)

Expert Solution
Check Mark

Answer to Problem 8TY

The equilibrium level of GDP is derived as $5,180 for the rate of interest at 5 percent (r=0.05)

Explanation of Solution

Substituting the values of rate of interest 5 percent (r=0.05)

in the investment function and the total investment is being calculated as follows:

  I=1,000100r   =1,000100(0.05)   =1,0005   = 995

The equilibrium level of GDP is derived as follows:

  Y=(300+0.75Y)+995+0+0   =300+0.75Y+995   =1,295+0.75Y

By bringing the variable Y

to the left hand side:

    Y0.75Y=1,295Y(10.75)=1,295        0.25Y=1,295               Y=12950.25               Y= 5,180

Therefore, the equilibrium level of GDP is $5,180 at rate of interest 5 percent (r=0.05)

Economics Concept Introduction

Introduction: The Gross Domestic Product (GDP) is the summation of market values, which includes the final services and goods for a period of time, in an economy.

c)

To determine

To Calculate: The equilibrium GDP.

c)

Expert Solution
Check Mark

Answer to Problem 8TY

The equilibrium level of GDP is derived as $5,160 for the rate of interest at 10 percent (r=0.10)

Explanation of Solution

Substituting the values of rate of interest 10 percent (r=0.10)

in the investment function and the total investment is being calculated as follows:

  I=1,000100r   =1,000100(0.10)   =1,00010   = 990

The equilibrium level of GDP is derived as follows:

  Y=(300+0.75Y)+990+0+0   =300+0.75Y+990   =1,290+0.75Y

By bringing the variable Y

to the left hand side:

    Y0.75Y=1,290Y(10.75)=1,290        0.25Y=1,290               Y=12900.25               Y= 5,160

Therefore, the equilibrium level of GDP is $5,160 at rate of interest 10 percent (r=0.10)

Economics Concept Introduction

Introduction: The Gross Domestic Product (GDP) is the summation of market values, which includes the final services and goods for a period of time, in an economy.

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