Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i. Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100. Required (a.) Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (b.) Suppose government purchases decline to 450. What happens to the variables listed in part (a)? (c.) Suppose government purchases rise to 650. What happens to the variables listed in part (a)?
Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i. Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100. Required (a.) Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (b.) Suppose government purchases decline to 450. What happens to the variables listed in part (a)? (c.) Suppose government purchases rise to 650. What happens to the variables listed in part (a)?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter5: Business And Economic Forecasting
Section: Chapter Questions
Problem 4E
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Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is
I d = 1000 - 45,000r. Real money demand is Md/P =Y - 6000i.
Other variables are πe = 0.03, G = 500, Y = 1000, and M = 2100.
Required
(a.) Find the equilibrium values of the real interest rate, consumption, investment, and the
(b.) Suppose government purchases decline to 450. What happens to the variables listed in part (a)?
(c.) Suppose government purchases rise to 650. What happens to the variables listed in part (a)?
(d.) What feature in this example leads to the result that you don’t need to know the amount of taxes collected by the government to find the equilibrium?
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