An economy is described by the following equation C d=14400 0.5(Y-T)-40000r, Ip=8000-20000r, G=7800, NX=1800, T=8000 a) Find the numerical equation relating planned aggregate expenditure (PAE) to output (Y) and to real interest rate (r). b) The real interest rate is 0.133, find short-run equilibrium output. c) Potential output, y*, equals 40,000. What real interest rate should be Reserve Bank set to bring the economy to full employment?

An economy is described by the following equation C d=14400 0.5(Y-T)-40000r, Ip=8000-20000r, G=7800, NX=1800, T=8000 a) Find the numerical equation relating planned aggregate expenditure (PAE) to output (Y) and to real interest rate (r). b) The real interest rate is 0.133, find short-run equilibrium output. c) Potential output, y*, equals 40,000. What real interest rate should be Reserve Bank set to bring the economy to full employment?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter8: The Keynesian Model

Section8.4: Why Investment Demand Is Unstable

Problem 1YTE

See similar textbooks

Similar questions

In the Neoclassical model of determination of income in the long run we assumed that aggregate consumption was an increasing function of disposable income, , and nothing else. Suppose that instead we assume that consumption is an increasing function of disposable income, , and a decreasing function of the real interest rate, . Provide an economic rationale for making consumption a function of the real interest rate. How does this assumption change the national saving function relative to the benchmark model Using the model developed in (1), use a diagram for the market for loanable funds to describe what happens to national saving, national investment, and the real interest rate when government expenditure increases. Make sure to also explain in your own words the economic intuition of your results.
How will planned investment spending change as the following events occur? a) The interest rate falls as a result of Federal Reserve policy. b) The U.S. Environmental Protection Agency decrees that corporation must upgrade or replace their machinery in order to reduce their emissions of sulfur dioxide. c) Baby boomers begin to retire in large number and reduce their savings, resulting in higher interest rates. Thank you very much for your help.
In the Neoclassical model of determination of income in the long run we assumed that aggregate consumption was an increasing function of disposable income, , and nothing else. Suppose that instead we assume that consumption is an increasing function of disposable income, , and a decreasing function of the real interest rate, . Provide an economic rationale for making consumption a function of the real interest rate. How does this assumption change the national saving function relative to the benchmark model?
Acme Manufacturing is producing $4,020,000 worth of goods this year and expects to sell its entire production. It also is planning to purchase $1,500,000 in new equipment during the year. At the beginning of the year, the company has $500,000 in inventory in its warehouse. Find actual investment and planned investment if:Instructions: Enter your responses as whole numbers. Actual investment Planned investment a. Acme actually sells $3,850,000 worth of goods. $ $ b. Acme actually sells $4,000,000 worth of goods. $ $ c. Acme actually sells $4,200,000 worth of goods. $ $ Assuming that Acme’s situation is similar to that of other firms, in which of these three cases is output equal to short-run equilibrium output? Case b Case c Case a None
Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y – T). Planned investment is 300, as are government spending and taxes. What happens to unplanned inventory investment? Should equilibrium Y be higher or lower than 1,500?
Give me correct and incorrect answer with explanation 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 Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Assume a model economy with the following parameters: C=300+0.25 Yd I=250+0.5Y-2500i G=350 T=300 (M/P)d= 4Y-16,000i (M/P)s= 880 Derive the IS and LM relations and solve for equilibrium real output and equilibrium interest rate.
Suppose the economy begins with output equal to its natural level. Then there is a decrease in consumer confidence, as households attempt to increase their saving, for a given level of disposable income. In AS-AD and IS-LM diagrams, show the effects of the decline in consumer confidence in the short run and the medium run. Explain why curves shift in your diagrams. Please please please put a picture of the diagrams! Thank you so much Please give me correct answer with full expalanation and carefullly draw otherwise i give multiple downvote.
Consumption and the real interest rate: According to the life-cycle / permanent-income hypothesis, consumption depends on the present discounted value of income. An increase in the real interest rate will make future income worth less, thereby reducing the present discounted value and reducing consumption. To incorporate this channel into the model, suppose the consumption equation is given by Assume the remainder of the model is unchanged from the original setup, as in Table 11.1. (a) Derive the IS curve for this new specification. (b) How and why does it differ from the original IS curve?
If business managers become more optimistic about future sales and profits, then there will be O no movement along or shift of the investment function an upward shift of the investment function a downward shift of the investment function a leftward movement along the investment function O a rightward movement along the investment function Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
can i get help please? The population is aware that the government borrowing required to finance this capital investment will need to be paid back via tax rises, so they respond by reducing their spending. Using a “Keynesian cross” framework and sketch diagram, model this response as a fall in autonomous consumption, c0.
Looking at business fixed investment, elaborate on why investment is negatively related to theinterest rates.b. Using the Tobin’s q theory, elaborate on the relationship between investment and capitalstock?c. If the market value of firm A is $1.5 million and the replacement cost of capital is $450,000, find the Tobin's q.d. Should the firm replace capital? Elaborate on your response.