1. a) Calculate the equilibrium GDP of a Keynesiandemand driven closed economy with autonomousinvestment and government expenditure. Derive theBalanced Budget Multiplier.the assumptioninvestment. Introduce the investment function 1=1. -0r,r is the real interest rate. Derive the IS curve. Ifb) NowrelaxonautonomouswhereM= aY - Brthe LM curve in this economy is Pthen derive theequilibrium output. Derive the multiplier effect andexplain. Would there be a crowding out?

The total supply of goods and services in the economy is determined by the factors of production in…

1. а) laté the equilibrium GDP of a Keynesian demand driven closed economy with autonomous investment and government expenditure. Derive the Balanced Budget Multiplier. b) Now relax the investment. Introduce the investment function !-1, -0r, where r is the real interest rate. Derive the IS curve. If assumption on autonomous M αΥ- βr the I M curve in this economy is P then derive the

1. а) laté the equilibrium GDP of a Keynesian demand driven closed economy with autonomous investment and government expenditure. Derive the Balanced Budget Multiplier. b) Now relax the investment. Introduce the investment function !-1, -0r, where r is the real interest rate. Derive the IS curve. If assumption on autonomous M αΥ- βr the I M curve in this economy is P then derive the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A4. In the Keynesian cross model, if the interest rate is constant and the MPC is 0.3, then the government purchases multiplier is A.0.3 B.0.7 C.1.4 D.3.3
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Assume that the long-run level of output is Y=1000Y=1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C=100+0.8(Y−T¯),I=100−2000r,C=100+0.8(Y−T¯),I=100−2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M¯P=Y200i.M¯P=Y200i. The government is currently implementing a policy G¯=80,T¯=50G¯=80,T¯=50, and the central bank (CB) is supplying M¯=1000M¯=1000. Expected inflation is πe=0πe=0. Derive the IS curve. It should be written in the form Y=A−BiY=A−Bi, that is, you only need to solve for the values of A=A=Answer and B=B=Answer.
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