assume (i) Consumers spend $200 billion plus 80% of after-tax income, or C=200+0.8 Yd (ii) Investment demand varies inversely with the interest rate, such that I= 500-2000r (iii) Currently government spending and taxes are both $250 billion, or G=250 and Tx=250, (iv) The total money demand or liquidity preference schedule for this economy is an inverse function of the rate of interest and is given by the equation MD=850-1000r (v) The required reserve ratio for banks in this economy is 20%. No bank holds excess reserves, and everybody keeps their money in the bank. The total of reserves in the banks is $150 billion. Answer the following questions given the information above. a) The central bank wants national income to be $3000 billion. What must investment be for the equilibrium level of national income to be $3000 billion (if investment alone changes in response to the change in the interest rate)? b) At what interest rate is this level of investment (your answer to part (a)) achieved?
assume (i) Consumers spend $200 billion plus 80% of after-tax income, or C=200+0.8 Yd (ii) Investment demand varies inversely with the interest rate, such that I= 500-2000r (iii) Currently government spending and taxes are both $250 billion, or G=250 and Tx=250, (iv) The total money demand or liquidity preference schedule for this economy is an inverse function of the rate of interest and is given by the equation MD=850-1000r (v) The
Answer the following questions given the information above.
a) The central bank wants
b) At what interest rate is this level of investment (your answer to part (a)) achieved?
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