(1)Consider the following macroeconomic model of an économy. Y = C+1+G+ NX.... C = 250 + 0.75Y - 500R | = 1000 - 1000R.... (1) (Income Identity) .(2) (Consumption function) (3) (Investment function) .(4) (Government Expenditure) (5) (Net Export function) G = Go.... NX = 500 - 0.10Y - 500R. (a)Briefly explain why interest rate and net export are inversely related in equation 5. (b)Derive the expression for equilibrium real output Y. (c)Determine the value of aggregate real output given that government purchases are 800 and interest rate is 5%. (d)Write the expression for the multiplier and find its value. (e)How much is aggregate consumption and aggregate investment in this economy? (f)Suppose average tax rate is 10% of real output, evaluate the performance of this economy for evidence of a twin deficit.

(1)Consider the following macroeconomic model of an économy. Y = C+1+G+ NX.... C = 250 + 0.75Y - 500R | = 1000 - 1000R.... (1) (Income Identity) .(2) (Consumption function) (3) (Investment function) .(4) (Government Expenditure) (5) (Net Export function) G = Go.... NX = 500 - 0.10Y - 500R. (a)Briefly explain why interest rate and net export are inversely related in equation 5. (b)Derive the expression for equilibrium real output Y. (c)Determine the value of aggregate real output given that government purchases are 800 and interest rate is 5%. (d)Write the expression for the multiplier and find its value. (e)How much is aggregate consumption and aggregate investment in this economy? (f)Suppose average tax rate is 10% of real output, evaluate the performance of this economy for evidence of a twin deficit.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter9: Aggregate Expenditures

Section: Chapter Questions

Problem 7E

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