Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 21, Problem 11PA
Subpart (a):
To determine
Equations describing the economy.
Subpart (b):
To determine
Equations describing the economy.
Subpart (c):
To determine
Equations describing the economy.
Subpart (d):
To determine
Equations describing the economy.
Subpart (e):
To determine
Equations describing the economy.
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Consider an economy described by the following equations:
Y = C+I+G
C = 100+0.75 (Y-T)
I = 500-50r
G = 125
T = 100
where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 2,000.
What is the marginal propensity to consume in this economy?
Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 4 percent, so r = 4. Solve for GDP. How does it compare to the full-employment level?
Assuming no change in monetary policy, what change in government purchases would restore full employment?
Assuming no change in fiscal policy, what change in the interest rate would restore full employment?
An economy is described by the following set of equations:
C = 2,600 + 0.8(Y – T) – 5,000r,
I = 3,000 – 15,000r,
G = 800,
X = M = 0,
T = 1,000 + 0.3Y.
The real interest rate, expressed as a decimal, is 0.10 (that is, 10 percent).
Suppose the flow of GDP consistent with full employment is 10,000. What real interest rate would achieve full employment?
Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G = 1,700 The economists also estimate that the investment function is: I = 3,300 – 100 r, Where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.
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