Consider a closed economy where the goods and money markets are described by the following relationships:C = 500+ 0.8(Y-T)I= 500-10r-MP== 0.1Y - 35rG = 800T = 200M = 1000P = 2Where C is planned consumption, / is planned investment spending, T is government tax revenues, G isgovernment purchases, M is the money supply, P is the price level and r is the interest rate.b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point).Compute also the level of consumption and investment spending in equilibrium and check whether the actuallevel of spending matches the equilibrium level of output.d) If the Central Bank intends to pursue monetary policy in order to restore output to the same level before thefall in consumer confidence, how much should money supply change by? Use graphs to show the change inthe economy and explain very carefully the monetary transmission mechanisme) Suppose that, instead of relying on monetary policy, the government intends to take an active role inrestoring the economy to the original equilibrium by pursuing an expansionary fiscal policy. How much shouldgovernment spending change by? With the help of graphs, explain very carefully, the impact of this policy onthe economy.

Given, C=500+0.8(Y-T)I=500-10rMP=0.1Y-35rG=800T=200M=1000P=2

Consider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8(Y-T) I= 500-10r M P 0.1Y - 35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, / is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate.

Consider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8(Y-T) I= 500-10r M P 0.1Y - 35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, / is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macroeconomics And The Self Regulating Economy

Section: Chapter Questions

Problem 5WNG

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