i need in words (not handwritten) ... in your own words dont copyi need plagrism free Question 1 Aggregate Demand and Aggregate SupplySuppose that the economy is characterized by the followingbehavioural equations:C = 800 + 0.8 (Y – T)I = 150 + 0.1 Y – 1000 iG = 210Consumption:Real investment:Government spending:Tax revenue:T200 + 0.5Yi = in + 0.5 (n – n")0.5Central bank policy:%3DAggregate supply (AS) relation: 1= n° + (Y – Y,)The neutral rate of interest is i,-0.05, the inflation target of thecentral bank is n=0.05, the natural level of output is Y, = 1900,the labour force is L=2000, and the current expected value ofinflation is T=0.10.a) Derive the IS relation, and draw it in {i, Y} space. Explain itsmeaning in words.(Hint: solve for an equation with i on the left-hand sideusethe parameter numbers given above).b) Substitute the central bank policy relation into the realinvestment relation, and then derive the AD relation and draw itin {7, Y} space. Explain its meaning in words.(Hint: solve for an equation with m on the left-hand sideusethe parameter numbers given above).c) Using the AS and AD relations, solve for the current short-runequilibrium inflation rate, 7, and output, Y. Are these short-runequilibrium values greater or less than their medium-run values?d) Solve for the short-run equilibrium interest rate, i.e) Calculate the medium-run equilibrium values of real investment,and consumption, C. Confirm that Y, - C+I+G in the medium run.I,

Given, C=800+0.8(Y-T)where, C is consumption Y is output and T is taxesI= 150+0.1Y-1000iwhere, I is…

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Suppose that the economy is characterized by the following behavioural equations:

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model

Section: Chapter Questions

Problem 1CQ

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Q.No.1. Differentiate the following by giving at least one practical exampleAggregate demand Vs Aggregate supply
Suppose that a local economy has the following values for Desired C, I, G, and NX at a price levelof 100 given by: C = 6,000 + 0.9(1 − t)YI = 3,100G = 900NX = 2,000 − 0.06YThe tax rate (t) is equal to 10%. For every $1 increase in the price level, AutonomousConsumption (C) and Autonomous Investment (I) each decrease by $1.It also has an aggregate supply (AS) given by: AS = 2p10. What is the Short-Run Real GDP in this economy? Show your work. 11. Is this economy running a primary budget surplus or a primary budget deficit? How largeis it (in dollars)? Show your work. Suppose also that this government has an outstanding debt of $10,000, owed with an interestrate of 1%.12. Is this economy running a total budget surplus or a total budget deficit? How large is it(in dollars)? What is this country’s debt-to-GDP ratio? Show your work. Suppose that the above questions (Q10 – Q11) is only for the year 2010. Assume thateverything is the same (Ceteris Paribus) in 2011 and 2012 as it was in…
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Q.1.4 Which of the following statements about Fiscal Policy is INCORRECT? (2)(a) In order to combat inflation, the South African Reserve Bank must apply acontractionary fiscal policy;(b) A contractionary fiscal policy can result in higher levels of unemployment;(c) Expansionary fiscal policy will increase the budget deficit;(d) The application of fiscal policy will have no effect on aggregate supply in theAD‐AS model.