7. Given the following: C(YT) 200+ 0.75(Y-T) I(r) = 80 - 20r L(r,Y)=Y-90r G = 200 T = 75 M = 2500 P = 4 = c) What is the equilibrium output level Y*? d) What is the equilibrium interest rate r*?
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ANSWER BOTH C & D
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- Suppose that the government creates a disincentive for private saving by increasing the tax that people pay on income from holding stocks and bonds. Construct a well-labeled diagram that depicts the effect of the policy change on the real interest rate and the equilibrium quantity of investment.assume that as the economy booms, the demand for business and consumer loans rises significantly while the supply of funds and loans remains constant. As a result, the market interest rate for business and consumer loans rises to 20% per year. The government implements a ceiling on interest rates of 15% ab year and as a resultAssume the following model of a closed economy: Y = C + I + G C = 120 + .5(Y – T) I = 100 – 10r G = 75 T = 50 (M/P)d = Y – 30r Ms = 700 P = 2 Derive the equation for the IS curve, showing Y as a function of r alone. Derive the equation for the LM curve, showing Y as a function of r alone. Graph both the IS and the LM curves. What are the equilibrium level of income and equilibrium interest rate? (Y = 584, r = 7.8)
- Explain why you agree or disagree with the following statement:“Negative real interest rates cannot exist in an economy that is properly functioning.”Consider an economy that is characterized by the following equations= C= 400 + 05 Yd I = 700 - 4000i + 0.1Y G= 200 T = 200 (MP)d = 0.75Y - 75001 (MP)*= 600 What is the equilibrium interest rate (1)?The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts spending, holding other factors constant? options: point A point B point C point D
- Explain, with the aid of the goods-market-equilibrium diagram, how a decrease in government purchases will affect the equilibrium real interest rate.Assume the following model of the economy: Y = C + I + G C = 120 + 0.5(Y - T) I = 100 - 10r G = 50 T = 40 Md = Y - 20 r Ms = 600 P = 2 Graph both the IS and the LM curves. Use r = 5, 10, 15 What are the equilibrium level of income and equilibrium interest rate?Suppose the price of a basket of goods costs $25 in country x and ¥300 in country y. suppose the price level in country x and y is expected to rise by 5% and 10%,respectively, in next year. If the current interest rate in country X is 10%, what would you expect the interest rate to be in country y?
- Consider an economy described by the following equations:Y = C + I + GY = 5,000G = 1,000T = 1,000C = 250 + 0.75(Y −T )I = 1,000 − 50 r. a)Find the new equilibrium interest rateGiven the income level, saving is directly (positively) related to Group of answer choices interest rates and wealth, and inversely (negatively) related to households’ expectations about the future. wealth, and inversely (negatively) related to interest rates and households’ expectations about the future. interest rates, and inversely (negatively) related to wealth and households’ expectations about the future. households’ expectations about the future, and inversely (negatively) related to interest rates and wealth.Suppose the real interest rates in the United States and Switzerland are both 2%. Now suppose that the Federal Reserve in the United States conducts monetary policy that in turn raises domestic interest rates. Assume there are no policy changes in Switzerland and that their real interest rates stay steady at 2%.
