4. Consider a closed economy of AU land that can be described by the following functions: All values C, I, and G are in billions of USD. Investment expenditure: lg 500 -50r, where r is real interest rate(in percent) = 3% Government expenditure: G = 125 Lump-sum constant taxes: T = 100 (a) Find the equilibrium Y, C and Ig Consumption expenditure: C = 100 +0.75(Y-T) 6. lintiitch (b) The Bank of Thailand (BOT) has recently announced that consumer confidence in Thailand fell. Let the decrease in consumer confidence to be equal to 10 points, from 100 to 90, so now C= 90+0.75(Y-T). Find the new equilibrium Y. (c) Suppose the Bank of Thailand (BOT) is trying to reverse this adverse effect on the economy. The Bank of Thailand (BOT) can cut the interest rate in order to stimulate investment spending (Ig). The increase in Ig has to be sufficient to push the overall Y level back to the original Y level that you have found in part (a). Solve for this new interest rate. Please leave it as a percent with two decimal places. (d) Based upon your answer in part (c), what should the central bank do with the discount rate (DR) to achieve the target real interest rate? Also, what is the type of such a monetary policy?
4. Consider a closed economy of AU land that can be described by the following functions: All values C, I, and G are in billions of USD. Investment expenditure: lg 500 -50r, where r is real interest rate(in percent) = 3% Government expenditure: G = 125 Lump-sum constant taxes: T = 100 (a) Find the equilibrium Y, C and Ig Consumption expenditure: C = 100 +0.75(Y-T) 6. lintiitch (b) The Bank of Thailand (BOT) has recently announced that consumer confidence in Thailand fell. Let the decrease in consumer confidence to be equal to 10 points, from 100 to 90, so now C= 90+0.75(Y-T). Find the new equilibrium Y. (c) Suppose the Bank of Thailand (BOT) is trying to reverse this adverse effect on the economy. The Bank of Thailand (BOT) can cut the interest rate in order to stimulate investment spending (Ig). The increase in Ig has to be sufficient to push the overall Y level back to the original Y level that you have found in part (a). Solve for this new interest rate. Please leave it as a percent with two decimal places. (d) Based upon your answer in part (c), what should the central bank do with the discount rate (DR) to achieve the target real interest rate? Also, what is the type of such a monetary policy?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
100%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education