9 Consider the following Keynesian economy:Desired consumption: c° = 220 + 0.6(Y - T)-200rDesired investment: 1° = 300 - 300rTaxes: T= 20 + 0.2YGovernment purchases: G= 152Net exports: NX = 150 - 0.08Y - 500rMoney demand: L = 0.5Y - 200rMoney supply: M= 936Full-employment output: Y = 1000in this economy, the real interest rate does not deviate from the foreign interest rate.a. In the general equilibrium (that is, the long run), the value of output is 1000 , the real interest rate is 0.210, consumption is646 , investment is 237. net exports are -35, and the price level is 2.044.(Enter values rounded to three decimal places for the real interest rate and price level, and enter values rounded to integers for allother values.)b. Starting from full employment, government purchases are increased by 58, to 210. As a result of this change, in the short run,output becomes 1019, the real interest rate becomes 0.257, the consumption becomes 646, investment becomes 223, andnet exports become -60'.(Enter values rounded to three decimal places for the real interest rato, and enter values rounded to integers for all other values.)c. Using the same information as provided in part (b), in the long run, nominal money supply would be the price level would beand the real money supply would be.(Enter a value rounded to three decimal places for the price level, and enter values rounded to integers for all other values.)

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MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 5DQ

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