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An economy has full-employment output of 1000 Desired consumption and desired investment are Government purchases are 196 and taxes are

An economy has full-employment output of 1000. Desired consumption and desired investment are Cd = 200 + 0.8(Y -T) - 500r; Id = 200 - 500r. Government purchases are 196 and taxes are T = 20 + 0.25K Money demand is Md/P = 0.5Y- 250(r + πe), where the expected rate of inflation πe = 0.10. The nominal supply of money M = 9890. a. What are the general equilibrium values of the real interest rate, price level, consumption, and investment? b. Suppose that government purchases are increased to G = 216. What are the new general equilibrium values of the real interest rate, the price level, consumption, and investment? 4.

Apr 06 2020 View more View Less

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