40+ YD where Yp is disposable Problem 5. The economy is described by the consumption function C = income, investment I = 170 – 1600r where r is the real interest rate. It is known that the government budget is always balanced, and that the government constantly adjusts fiscal policy, so that government spending is 25% of GDP. The interest rate rule is r = 0.05 + 2(T – 0.04) + 0.15(Y150). Inflation is 4%. Find the equilibrium GDP in the IS/MP model.
40+ YD where Yp is disposable Problem 5. The economy is described by the consumption function C = income, investment I = 170 – 1600r where r is the real interest rate. It is known that the government budget is always balanced, and that the government constantly adjusts fiscal policy, so that government spending is 25% of GDP. The interest rate rule is r = 0.05 + 2(T – 0.04) + 0.15(Y150). Inflation is 4%. Find the equilibrium GDP in the IS/MP model.
Chapter15: Fiscal Policy
Section: Chapter Questions
Problem 1SQ
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Transcribed Image Text:Problem 5. The economy is described by the consumption function C = 40+ YD where Yp is disposable
income, investment I = 170 – 1600r where r is the real interest rate. It is known that the government
budget is always balanced, and that the government constantly adjusts fiscal policy, so that government
spending is 25% of GDP. The interest rate rule is r = 0.05 + 2(T – 0.04) + 0.15(50). Inflation is 4%.
Find the equilibrium GDP in the IS/MP model.
Y–150
150
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