An economy has full-employment output of 6,000. Government purchases, G, are 1,000. Desired consumption and desired investment are cd=3,800-2,000r+0.25Y, and = 1,200-3,000r. where Y is output and r is the real interest rate. a. Find an equation relating desired national saving, s, to rand Y. Sd=+r+y
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- Suppose the Biden administration permanently increases government purchases. (You shouldassume that the economy is at Y* before the increase.)a. What will be the impact on the economy’s normal real interest rate (r*) and normalinvestment (I*)? Explain with the help the long-run savings and investment diagramConsider a closed economy with output of $200M, Consumption of $150M, and Government spending of $45M. If the investment function is I = 50 – r (in millions), what will the equilibrium interest rate be?Please explain the correct answer(s). An investor wants to be able to buy 4 percent more goods and services in the future in order to induce her to invest today. During the investment period, prices are expected to rise by 2 percent. Which statement(s) below is/are true? 1.I. 4 percent is the desired real risk-free interest rate. 2.II. 6 percent is the approximate nominal rate of interest required. 3.III. 2 percent is the expected inflation rate over the period. A) I only B) II only C) III only D) I and II only E) I, II, and III
- 1.Consider the Economy of Rwanda. The consumption function is given by ?=200+0.75[?−?] while theinvestment function is ?=200−25?. Government purchases and taxes are both 100.The money demand function of Rwanda is [??⁄]?=?−100?. The nominal money supply is 100 and theprice level P is 2.i i) Derive the IS curve equation.ii ii) Draw a well labeled diagram of the IS Curve.iii iii) Derive the LM curve equation.iv iv) Draw a well labeled diagram of the LM Curve.v v) Determine the equilibrium level of income and equilibrium interest rate2.Keynes developed the concept of the multiplier with the intention of arguing that extra governmentspending on public works which is financed by a budget deficit would have a positive effect on a demanddeficient economy. However, several factors limit the application of the multiplier for an economicmanagement. Discuss3.Trade war happens when one country retaliates against another by using import tariffs or placing otherrestriction on the other country’s…A decline in the interest rate, other things constant, shifts the investment schedule downward. O True O FalseDesired consumption is C^d = 100 + 0.8Y - 500r - 0.5G, and desired investment is I^d = 100 - 500r. Real money demand is (M^d)/P = Y - 2000i. Other variables are πe = 0.05, G = 200, = 1000, and M = 2100. Find the equilibrium values of the real interest rate, consumption, investment, and the price level.
- Given 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.Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i. Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100. Required (a.) Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (b.) Suppose government purchases decline to 450. What happens to the variables listed in part (a)? (c.) Suppose government purchases rise to 650. What happens to the variables listed in part (a)? (d.) What feature in this example leads to the result that you don’t need to know the amount of taxes collected by the government to find the equilibrium?Consider a closed economy. A decrease in the price of goods that firms produce and anincrease in the marginal propensity to save of households will decrease the equilibriumreal interest rate and equilibrium investment in this economy. ture or false or uncertain
- Desired consumption, desired investment, and government spending in a closed economy are Cd = 360 - 200r + 0.1Yd Id = 120 - 400r G = 120 Find an equation for desired national saving, Sd in terms of output Y and the real interest rate r. What value of the real interest rate clears the goods market when Y = 550? When Y = 600? When Y = 650? Use the goods market equilibrium condition to derive the IS curveConsider a closed-economy. The economywide expected future marginal product of capital is MPKf = 50 − 0.05K^f , where Kf is the future capital stock. The depreciation rate of capital, δ, is 10% per period. The current capital stock, K, is 900 units of capital. The real price of a unit of capital is 8 unit of output. Firms pay taxes equal to 20% of their output. The consumption equation is C = 100 + 0.6Y −100r, where C is consumption, Y is output, and r is the real interest rate. Government spending equals 150 and full-employment output is 1000. (a) Suppose the current real interest rate is 10% per period. What are the values of the tax-adjusted user cost of capital, the desired future capital stock, and the desired level of investment? (b) When the real interest rate equals 10%, what are the desired levels of consumption and saving (assuming output is at the full-employment level)? 10 (c) Is the goods market in equilibrium when the real interest rate equals 10%? Provide an intuitive…If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y − 20,000r, andpotential output equals 34,000, what real interest rate must the Federal Reserve set to bring theeconomy to full employment?