EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
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Chapter 11, Problem 4RQ
To determine
The equation of the IS curve.
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Consider the following macroeconomic model:
Y = C + Io + Go
C = a + b(Y-T)
T = d+tY
Where the endogenous variables are Y, C and T, while the exogenous
variables are G₁ and I. The parameters are such that a > 0,d>0,0
This question requires you to solve a macro model algebraically. Reading the appendix to this chapter will help you to answer this question. But, just in case, we lead you through it step by step. The equations for the model are as follows: i) C = c + MPC × YD consumption ii) I = I0 investment iii) G = G0 government purchases iv) T = tY net tax revenue v) X = X0 exports vi) IM = mY imports a. Step 1: Recall that Y D = Y – T. By using this fact, substitute the tax function into the consumption function and derive the relationship between desired consumption and national income. b. Step 2: Sum the four components of desired aggregate expenditure ( C, I, G, NX). This is the aggregate expenditure ( AE) function. Collect the autonomous terms separately from the induced terms. c. Step 3: Recall the equilibrium condition, Y = AE. Form the equation Y = AE, where AE is your expression for the AE function from part (b). (Your autonomous terms can be collectively labelled A and the terms that…
Suppose England's economy is in long-run equilibrium. As a result of the coronavirus, the British government orders all non-essential businesses to close and issue “shutter in” and other “stay at home” directives requiring its citizens and residents not to leave their residences absent emergencies and/or to purchase food and groceries from markets (that is, people cannot, for example, go to restaurants, movies or sporting events and the like.) If so, then we would predict that in the short-run England's
A.
real GDP will fall and the price level might rise, fall, or stay the same.
B.
real GDP will rise and the price level might rise, fall, or stay the same.
C.
the price level will rise, and real GDP might rise, fall, or stay the same.
D.
the price level will fall, and real GDP might rise, fall, or stay the same
Chapter 11 Solutions
EBK MACROECONOMICS (FOURTH EDITION)
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