Consider an economy as described in class and is further characterized by C=eY, with c=0.75, T-= 250, NX=250, and I = 1 - br, with I = 500 and b=5,000. Note that investment depends onthe interest rate (r).a. Calculate the income equilibrium of the economyb. Assume that, due to the increasingly pessimistic expectations of investors, autonomousinvestment decreases from 500 to 300. The interest rate and all other exogenous variables stayconstant. Calculate the resulting change in equilibrium income.c. At the same time the interest rate decreases from 0.06 to 0.05. Calculate the effect onequilibrium income.

Given:C= 0.75*YT=0G=250NX = 250I = 500 -5000*r From (C) part r = 0.06 (a) Income equilibrium of…

Consider an economy as described in clas and is frther characterized by C =cY, with e=0.75, T= 0,G=250, NX= 250, and /=1-br, with = 500 and b=5,0. ote tha iwestment depends on the interest rate (). %3D %3D a. Calculate the income equilibrium of the economy b. Assume that, due to heincreasingly esisic expectaions of imestor, automomous investment decreases from 500 to 300. The iteres rate and all ther exogenous variables tay Constant. Calculate the reuling change in equilibrium income. C. At the same time the interest rate decreases from 0.06 to 0.05. Calculate the efect on equilibrium inome.

Consider an economy as described in clas and is frther characterized by C =cY, with e=0.75, T= 0,G=250, NX= 250, and /=1-br, with = 500 and b=5,0. ote tha iwestment depends on the interest rate (). %3D %3D a. Calculate the income equilibrium of the economy b. Assume that, due to heincreasingly esisic expectaions of imestor, automomous investment decreases from 500 to 300. The iteres rate and all ther exogenous variables tay Constant. Calculate the reuling change in equilibrium income. C. At the same time the interest rate decreases from 0.06 to 0.05. Calculate the efect on equilibrium inome.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter9: Aggregate Expenditures

Section: Chapter Questions

Problem 5E

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