Let: C = consumption I = investment spending G = government spending Tx = tax revenue Yd = after-tax income MS = money supply MD = money demand r = interest rate Assume for a given closed economy: (i) Consumers spend $200 billion plus 80% of after-tax income, or C=200+0.8 Yd (ii) Investment demand varies inversely with the interest rate, such that I= 500-2000r (iii) Currently government spending and taxes are both $250 billion, or G=250 and Tx=250, (iv) The total money demand or liquidity preference schedule for this economy is an inverse function of the rate of interest and is given by the equation MD=850-1000r (v) The required reserve ratio for banks in this economy is 20%. No bank holds excess reserves, and everybody keeps their money in the bank. The total of reserves in the banks is $150 billion. Answer the following questions given the information above. d) The central bank wants national income to be $3000 billion. What must investment be for the equilibrium level of national income to be $3000 billion (if investment alone changes in response to the change in the interest rate)? e) At what interest rate is this level of investment (your answer to part (d)) achieved?

Let: C = consumption I = investment spending G = government spending Tx = tax revenue Yd = after-tax income MS = money supply MD = money demand r = interest rate Assume for a given closed economy: (i) Consumers spend $200 billion plus 80% of after-tax income, or C=200+0.8 Yd (ii) Investment demand varies inversely with the interest rate, such that I= 500-2000r (iii) Currently government spending and taxes are both $250 billion, or G=250 and Tx=250, (iv) The total money demand or liquidity preference schedule for this economy is an inverse function of the rate of interest and is given by the equation MD=850-1000r (v) The required reserve ratio for banks in this economy is 20%. No bank holds excess reserves, and everybody keeps their money in the bank. The total of reserves in the banks is $150 billion. Answer the following questions given the information above. d) The central bank wants national income to be $3000 billion. What must investment be for the equilibrium level of national income to be $3000 billion (if investment alone changes in response to the change in the interest rate)? e) At what interest rate is this level of investment (your answer to part (d)) achieved?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter2: Mathematics For Microeconomics

Section: Chapter Questions

Problem 2.4P

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Let: C = consumption I = investment spending G = government spending Tx = tax revenue Yd = after-tax income MS = money supply MD = money demand r = interest rate Assume for a given closed economy: (i) Consumers spend $200 billion plus 80% of after-tax income, or C=200+0.8 Yd (ii) Investment demand varies inversely with the interest rate, such that I= 500-2000r (iii) Currently government spending and taxes are both $250 billion, or G=250 and Tx=250, (iv) The total money demand or liquidity preference schedule for this economy is an inverse function of the rate of interest and is given by the equation MD=850-1000r (v) The required reserve ratio for banks in this economy is 20%. No bank holds excess reserves, and everybody keeps their money in the bank. The total of reserves in the banks is $150 billion. Answer the following questions given the information above. a) What is the total money supply? b) What is the equilibrium interest rate? c) What is the equilibrium level of national…
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In February 2020, 15,300 people were employed, 2,700 were unemployed, and 7,000 people were not in the labor force. During March 2020, 160 people lost their jobs and didn't look for new ones, 140 people quit their jobs and retired, 800 unemployed people were hired, 100 people stopped looking for jobs and quit the labor force, and 700 people entered the labor force to look for work. a. Calculate for February 2020 i. The unemployment rate ii. The employment-to-population ratio b. Calculate for the end of March 2020 i. The number of people unemployed ii. The number of people employed iii. The unemployment rate
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1. Complete the accompanying table with disposable income (DI) and consumption (C) schedules for a private, closed economy. All figures are in billions of dollars. DI Consumption Saving АРС APS MPC MPS 8. 40 40 80 72 120 104 160 136 200 168 240 200 (a) Refer to the above data. If plotted on a graph, the slope of the consumption schedule would be: (b) The break-even level of income is ($ ) where saving equals ( $ :). Households dissave ( $ ). Dissaving occurs at the lowest levels of income as households spend ( more, less ) than they receive in disposable income. This dissaving could occur with households liquidating (selling for cash) their assets or borrowing money. As income rises we see that savings ( increases, decreases ) by a greater and greater amount. (c) If consumption increases by $10 billion at each level of disposable income, the average propensity to consume (APC) will ( change, unchange) and/but the marginal propensity to consume (MPC)will ( change, not change). (d) (APC,…
Sa = -5000 and mpc or c = 0.8 Formulate the consumption function & interpret the function. Formulate the savings function & interpret the function.
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Assume that an economy is characterized by the following equations: C = 100 + 0.5(Y – T) T = 100 G = 200 I = 50 – 2r (M/P) = (M/P) = Y – 6r (a) Solve for the equilibrium values of Y and r, assuming P = 10 and M = 4,000. (6 pointa) (b) Assume the federal government reduces spending to balance the budget. Calculate the effective IS-LM multiplier and explain why the equilibrium reduction in output was less than the value implied by the Keynesian-cross multiplier. (6 pointa)
(a) Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively. What is MPC, MPS and autonomous consumption Derive the saving function. What is the equilibrium level of income? Y= AD=C+I+G If government purchases increase to $150 million, what is the new equilibrium level of income? What level of government purchases is needed to achieve an income of $2000 million? From question e) you get the newly government purchase. Now find out the multiplier value What is the amount of shift in AD curve? [Use the multiplier value from e)] (b) In a self-regulating economy “X”, labor supply is 40 million but labor demand is 10 million. What will happen in goods and service market simultaneously? Explain this situation with relevant graph. Based on your findings in a) is it denoting long run equilibrium? If not, will the economy be able to restore…