Essay on Econ wk 2

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Karynn Ortiz Week 2 HW Chapter 3. Problem 2 Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the magical propensity to consume, planned investment, government purchases and goods and services, and net exports. Ca =1500-10r c=0.6 T=1800 Ip=2400-50r G=2000 NX=-200 a. Compute the value of the marginal propensity to save. 1-c = s 1 - 0.6= .04 Marginal propensity to save is .04 b. Compute the amount of autonomous planned spending Ap, given that the interest rate equals 3. Ca – cTa + Ip + G+…show more content…
Given your answers to part a, graph the demand for money curves when income equals $11940 and income equals $12180. 4.4 4.7 5.0 5.3 5.6 5.9 6.2 11940 12180 c. Suppose the real money supply, Ms/P, equals $2750. Given your answers to part a, find the interest rates and levels of real income at which the money market is in equilibrium. Use these combinations of the interest rate and real income to graph the LM curve, given that the real money supply equals $2750. Label this curve LM0 (11,940, 4.7) (12,000, 5.0) (12,060, 5.3) (12,120, 5.6) (12,180, 5.9). 5.9 5.6 5.3 5.0 4.7 11,940 12,000 12,060 12,120 12,180 LM0 d. Suppose the real money supply increases to $2780. Given your answers to part a, find the new combinations of the interest rates and real income at which the money market is in equilibrium. Use these combinations to graph the new LM curve, given that the new real money supply equals $2780. Label this curve LM1 (12,000, 4.4) (12,060, 4.7) (12,120,

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