Given the following information: Consumption: 100 + 0.8 Yd Investment: 150 – 16i Govt. expenditure: 100 Taxes: 0.25Y DD for money: 0.2Y – 2i Nominal money supply: 300 Price level: 2 a) Determine equilibrium level of income and rate of interest b) If govt expenditure increases by 50, what will be the new equilibrium of income and the rate of interest? c) Is there any crowding out? If yes, what is the extent of crowding out of income

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Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
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Given the following information:

Consumption: 100 + 0.8 Yd

Investment: 150 – 16i

Govt. expenditure: 100

Taxes: 0.25Y

DD for money: 0.2Y – 2i

Nominal money supply: 300

Price level: 2

a) Determine equilibrium level of income and rate of interest

b) If govt expenditure increases by 50, what will be the new equilibrium of income and the

rate of interest?

c) Is there any crowding out? If yes, what is the extent of crowding out of income?

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