Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) | = 400 – 15r M 200 +Y- 100r P G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. Department of Economics ) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. ) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.
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- Task 3 Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) I = 400 – 15r M = 200 + Y – 100r P G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. c) The government reduces taxation to T=50 in order to boost economic activity. Assume no changes in the values of all the other variables. 1. What is the immediate increase in income before the…Consider a frugal closed economy without money market. Assume there is no government or exports/imports. The economy is described by the following set of equations. C =1000+0.5⋅Y ID = 600 1. What is the marginal propensity to save of this economy? a) 0.4 b) 0.5 c) 0.1 d) 0.3 e) 0.2 Currently, the economy is saving a half of the amount it consumes. The level of unplanned inventory change is [0, 600, 200, 1400 , 2000 ] and the economy is [equilllibrium or not at equillibrium,]Task 3 Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) I= 400 – 15r M/P = 200 + Y – 100r G = 150 T = 100 M = 2000 P| =2 Where Cis planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. c) The government reduces taxation to T=50 in order to boost economic activity. Assume no changes in The values of all the other variables. 1. What is the immediate increase in income before the economy adjusts to its new equilibrium? 2. What are the economy's equilibrium level of output Y and interest rate following the cut in taxation? Compute the equilibrium level of consumption and investment spending. With the help of the IS/LM graph, carefully explain what happens to the economy following the cut in taxation. d)lf the government intends to pursue monetary policy instead of fiscal policy in…
- 1. Consider a model of a goods market in a closed economy that is characterized by the followingequations:Consumption : C = 160 + 0.6(Y −T )Investment : I = 150Taxes : T = 100Government spending : G = 110EQ Output : Y = 1/(1 −c1)[c0 + I + G −c1T](a) Solve for the output in the economy.(b) Compute the sum of private and public saving.(c) Considering your answer to part b and the information given above, is this economy in equilib-rium? Explain.Consider a closed economy where the goods and money markets are described by the following relationships: C 500+ 0.8 (Y-T) I= 500 10r M P a) 0.1Y35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, I is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). mpute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. e) Suppose that, instead of relying on monetary policy, the government intends to take an active role in restoring the economy to the original equilibrium by pursuing an expansionary fiscal policy. How much should government spending change by? With the help of graphs, explain very carefully, the impact of this policy on the economy. f) An…Given the following on a closed economy.C = 40 + 0.8Yd C= consumptionI = 55 – 200r I= InvestmentG = 20 G = government spendingT = 20 T = TaxesYe = 400 Ye = National Incomer = rate of interest Find: The level of Private savingsThe level of Public savingsThe level of national savings
- Consider the closed-economy market-clearing model. Assume that the marginal propensity to consume is 0.8. Tax revenue decreases by $5 billion, while output and government spending remain the same (a) Calculate the dollar change in consumption. (b) Calculate the dollar change in national saving.An open economy is described by the following system of macroeconomic equations, in which all macroeconomic aggregate are measured in billions of Namibian dollars, N$:Y = C + I + G + X –MC = 160 + 0.6 YdT = 100 + 0.25YX = 80I = 150G = 150M = 22 + 0.25YWhere: Yis domestic incomeYdis private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending X represents exports M represents imports of goods and services. 1.1 (a)Determine the equilibrium level of income/ output. (b) Illustrate the aggregate spending curve and equilibrium level of income on a diagram. (c) Determine the surplus/ deficit in the government budget at equilibrium.(d) Determine trade balance at equilibrium. (e) Find the multiplier applicable to autonomous tax and interpret it.1.2 (a)Use the multiplier applicable to exports, to explain how a 100 billion decline in demand for exports could have affected the economy’s:(i)GDP/ output (ii)Balance of trade (iii)Government budgetAn open economy is described by the following system of macroeconomic equations, in which all macroeconomic aggregate are measured in billions of Namibian dollars, N$:Y = C + I + G + X –MC = 160 + 0.6 YdT = 100 + 0.25YX = 80I = 150G = 150M = 22 + 0.25YWhere: Yis domestic incomeYdis private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending X represents exports M represents imports of goods and services. (a) Determine trade balance at equilibrium. (b) Find the multiplier applicable to autonomous tax and interpret it. (c)Use the multiplier applicable to exports, to explain how a 100 billion decline in demand for exports could have affected the economy’s: (i)GDP/ output (ii)Balance of trade (iii)Government budget
- Problem 1. The following equations characterize country's economy. Assume that the economy is a closed economy. Production function: Y = A·K'N – 3·N²/2. where A = 5 and K = 21. Labor supply: N$ = 5 + 3w. Desired Consumption: Cd = 56 +0.75Y – 100r Desired Investment: Iª = 130 – 900r Government Spending: G = 300 (a) Find the equilibrium levels of the real wage, employment and output (you may want to go back and read your notes on labor market). (b) Find the equilibrium level of the real interest rate, consumption, investment and national saving. (c) Illustrate your answers to parts (a)and (b) with appropriate graphs. (d) Suppose that due to a wave of immigration, labor supply increases. The new labor supply curve is given by Labor supply: N$ = 25 + 3w. Find the new equilibrium values of the real wage, employment, output, the real interest rate, investment, saving and consumption. Illustrate these new answers in the graphs that you drew for part (c).stion 21 of 22 > Identify whether each macroeconomic variable is an example of a withdrawal or an injection. Then, determine the value of investment at equilibrium. All values are in billions of dollars. Withdrawal saving = $720 imports = $2520 taxes = $2700 investment at equilibrium: $ 400 Answer Bank Injection government spending = $3600 exports = $1980 Attempt 1 investment = ? billionSuppose that Marvel Kingdom economy is characterized by the following equations. Aggregate consumption: C = 100 + 0.75Y, Investment: I = 500– 5r Government spending on goods and services: G = 200 Lump-sum tax: Net Export: T = 300 NX = 200 Interest rate: : r = 5% Yp is disposable income, Y is real output, while r is interest rate (in percentage). Yp, Y, C, I, G, T, and NX are in trillions Marvel Dollar (MD) Solve for the initial equilibrium output (Y,) and find the economic multiplier. If the government aims for a target output level (Y,) of MD 3500 trillion, how much will output increase and how much should the government set its spending to achieve the targeted output level?