Consider the economy of Ghana. The consumption function is given by C = 400 + 0.8(Y - T). The investment function is I = 600 - 70r. Government purchases is 400. Assume a balanced budget. The money demand function is (M/P)d = Y - 180r. The money supply M is 3,000 and the price level P is 3. a. Find the equilibrium interest rate r and the equilibrium level of income Y. b. Suppose that government purchases are increased from 400 to 600. What are the new equilibrium interest rate and level of income? c. Suppose instead that the money supply is increased from 3,000 to 3,500. What are the new equilibrium interest rate and level of income? d. With the initial values for monetary and fiscal policy, suppose that the price level rises from 3 to 5. What are the new equilibrium interest rate and level of income?
Consider the economy of Ghana.
The consumption function is given by C = 400 + 0.8(Y - T).
The investment function is I = 600 - 70r.
Government purchases is 400. Assume a balanced budget.
The money demand function is (M/P)d = Y - 180r.
The money supply M is 3,000 and the price level P is 3.
a. Find the equilibrium interest rate r and the equilibrium level of income Y.
b. Suppose that government purchases are increased from 400 to 600. What are the new equilibrium interest rate and level of income?
c. Suppose instead that the money supply is increased from 3,000 to 3,500. What are the new equilibrium interest rate and level of income?
d. With the initial values for monetary and fiscal policy, suppose that the price level rises from 3 to 5. What are the new equilibrium interest rate and level of income?
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