Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports: Ca = 1,500 – 20r, c = 0.6; I= 2,450 – 60r; G= 1,980; NX=- 200; T= 1,750. a. Compute the value of the marginal propensity to save. b. Compute the amounts of autonomous planned spending, Ap, when the interest rate equals 0, 2, 4, and 6. c. Compute the equilibrium levels of income when the interest rate equals 0, 2, 4, and 6. Graph the IS curve.
Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports: Ca = 1,500 – 20r, c = 0.6; I= 2,450 – 60r; G= 1,980; NX=- 200; T= 1,750. a. Compute the value of the marginal propensity to save. b. Compute the amounts of autonomous planned spending, Ap, when the interest rate equals 0, 2, 4, and 6. c. Compute the equilibrium levels of income when the interest rate equals 0, 2, 4, and 6. Graph the IS curve.
Chapter20: Exchange Rates And The Macroeconomy
Section: Chapter Questions
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Transcribed Image Text:Consider an economy in which taxes, planned investment, government spending on goods and
services, and net exports are autonomous, but consumption and planned investment change as
the interest rate changes. You are given the following information concerning autonomous
consumption, the marginal propensity to consume, planned investment, government purchases of
goods and services, and net exports:
Ca = 1,500 – 20r, c = 0.6; I= 2,450 – 60r; G= 1,980; NX =- 200; T = 1,750.
a. Compute the value of the marginal propensity to save.
b. Compute the amounts of autonomous planned spending, Ap, when the interest rate equals 0,
2, 4, and 6.
c. Compute the equilibrium levels of income when the interest rate equals 0, 2, 4, and 6. Graph
the IS curve.
d. Suppose that policymakers decide to reduce the number of troops in Afghanistan, which
results in a reduction of government spending of $80 billion. Compute the new amounts of
autonomous spending, Ap, when the interest rate equals 0, 2, 4, and 6.
e. Compute the equilibrium levels of income when the interest rate equals 0, 2, 4, and 6 and
graph the new IS curve.
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