7) Suppose an economy is given by the following equations: C = 150+ 0.25Yd I= 150 +0.25Y - 1000i G = 250 T = 200 Yd=Y-T (M/P) = 1400 Y L(i)=2Y-8000i Yn (Natural level of output) = 1200 Using the above information, answer the following. Derive the IS and LM equations. (a) (b) (c) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? Suppose that real money supply (M/P) increases to 2800. Calculate the new equilibrium output (Y) and the new equilibrium interest rate (i). Did the economy arrive at the natural level of output? Explain why or why not? (d) If your answer to part "c" above is no, is there an alternative policy that can help the economy arrive at the natural level of output? Does the alternative policy have limits? Explain.

7) Suppose an economy is given by the following equations: C = 150+ 0.25Yd I= 150 +0.25Y - 1000i G = 250 T = 200 Yd=Y-T (M/P) = 1400 Y L(i)=2Y-8000i Yn (Natural level of output) = 1200 Using the above information, answer the following. Derive the IS and LM equations. (a) (b) (c) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? Suppose that real money supply (M/P) increases to 2800. Calculate the new equilibrium output (Y) and the new equilibrium interest rate (i). Did the economy arrive at the natural level of output? Explain why or why not? (d) If your answer to part "c" above is no, is there an alternative policy that can help the economy arrive at the natural level of output? Does the alternative policy have limits? Explain.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter25: The Keynesian Perspective

Section: Chapter Questions

Problem 20CTQ: Suppose the economy is operating at potential GDP when It experiences an increase in export demand....

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Suppose the economy is operating at potential GDP when It experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?
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