Exercise 1 (45%):In the textbook, Model I is the least complicated way to definethe relations in the real economy. Then the activity Y is afunction of exogenous factors explained outside the model.The model is based on the data found in the NationalAccounts and is defined as follows:Y= Cp + Ip +G+NXCp = c(Y-T)+C°Ip = 1° - biNX = NX° - aYT=T° + tY.Based on such a model I, we establish a general function forthe real economy which can then be as follows:Y=T==0+C + 1° + NX° + G - cT° - bi)The elements that are part of the general macroeconomicrelationship have the following values:Cp = 0.75 (Y - T) + 1400Ip = 1250 - 90iNX = 2800 - 0.3Y%3DT= 1200 + 0.19YG= 2000i = 1.5.%3D b) Show that the activity Y when the parliamentary majorityincreases Ip by 100so thatAlp = 100 and Ip = 1350 will be over 9000!Show how much the government should increase publicspending for thatY> 9500. What justifies such an increase even if the budgetbalance is weakened?c) Take as a starting point figure 5.10 in the textbook whereten key factors are presented that contribute to influencingprivate real investment. Which of these do you think cancreate such a growth of Alp = 100?

AD = C+I+G+NX Where C = consumption expenditure I = investment expenditure G= government spending I…

b) Show that the activity Y when the parliamentary majority increases Ip by 100 so that Alp = 100 and Ip = 1350 will be over 9000! Show how much the government should increase public spending for that Y> 9500. What justifies such an increase even if the budget balance is weakened?

b) Show that the activity Y when the parliamentary majority increases Ip by 100 so that Alp = 100 and Ip = 1350 will be over 9000! Show how much the government should increase public spending for that Y> 9500. What justifies such an increase even if the budget balance is weakened?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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