Consider an economy described by the following equations Y = C +I + G C = 100 + 0.75(Y – T) I = 500 – 50r G = 125; T = 100 %3D - %3D Where Y is GDP, C is consumption, I is investment, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be $2000. a. Explain the meaning of each of these equations. b. What is the marginal propensity to consume (MPC) in this economy? c. Suppose the Central Bank's policy is to adjust the money supply to maintain the interest rate at 4 %, sor = 4. Solve for GDP. How does it compare to the full- employment level? in monetary nolicy, what change in government purchases

Consider an economy described by the following equations Y = C +I + G C = 100 + 0.75(Y – T) I = 500 – 50r G = 125; T = 100 %3D - %3D Where Y is GDP, C is consumption, I is investment, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be $2000. a. Explain the meaning of each of these equations. b. What is the marginal propensity to consume (MPC) in this economy? c. Suppose the Central Bank's policy is to adjust the money supply to maintain the interest rate at 4 %, sor = 4. Solve for GDP. How does it compare to the full- employment level? in monetary nolicy, what change in government purchases

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 11PA

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Consider an economy described by the following equations:Y=C+I+GC=100+0.75(Y-T)I=500-50rG=125T=100wher Yis GDP,C is consumpton,I is investment,G is government purchases,T is taxes,and r is the interest rate.If the economy were at full employment that is , at its natural rate,GDP would be 2,000.a.Explain the meaning of each of these equations.b.What is the marginal propensity to consume in this economy?c.Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 4 percent,so r=4.Solve for GDP.How does it compare to the full employment level?d.Assuming no change in monetary policy,what change in government purchases would restore full employment?e.Assuming no change in fiscal policy,what change in interest rate would restore full employment?
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