4. Consider a classical economy described as follows: 11 Y = LZK², where L is the amount of labor and K is the amount of capital. The economy has 10,000 units of labor and 10,000 units of capital. Consumption (C): 5,020-100r, Investment (I): 2,000-100r, Taxes (T): 2,500, Government Purchases (G) :3,000 a. Compute the total production and find the equilibrium interest rate. b. Compute private saving, government saving, and national saving. c. Now suppose that G is reduced by 10. Find the new equilibrium interest rate. What happens to consumption, private saving, government saving, national saving and investment? 5. An economy has a monetary base of 100$ bills. People hold equal amounts of currency and demand deposits. Banks has 20% of deposits as reserves. a. What is the money multiplier? Compute the money supply. b. The central bank decides to increase the money supply by 10%. How much should it increase the monetary base?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
4. Consider a classical economy described as follows:
Y = LEK, where L is the amount of labor and K is the amount of capital. The economy
has 10,000 units of labor and 10,000 units of capital.
Consumption (C): 5,020-100r, Investment (I): 2,000-100r, Taxes (T): 2,500, Government
Purchases (G) :3,000
a. Compute the total production and find the equilibrium interest rate.
b. Compute private saving, government saving, and national saving.
c. Now suppose that G is reduced by 10. Find the new equilibrium interest rate. What
happens to consumption, private saving, government saving, national saving and
investment?
5. An economy has a monetary base of 100$ bills. People hold equal amounts of currency
and demand deposits. Banks has 20% of deposits as reserves.
a. What is the money multiplier? Compute the money supply.
b. The central bank decides to increase the money supply by 10%. How much should it
increase the monetary base?
Transcribed Image Text:4. Consider a classical economy described as follows: Y = LEK, where L is the amount of labor and K is the amount of capital. The economy has 10,000 units of labor and 10,000 units of capital. Consumption (C): 5,020-100r, Investment (I): 2,000-100r, Taxes (T): 2,500, Government Purchases (G) :3,000 a. Compute the total production and find the equilibrium interest rate. b. Compute private saving, government saving, and national saving. c. Now suppose that G is reduced by 10. Find the new equilibrium interest rate. What happens to consumption, private saving, government saving, national saving and investment? 5. An economy has a monetary base of 100$ bills. People hold equal amounts of currency and demand deposits. Banks has 20% of deposits as reserves. a. What is the money multiplier? Compute the money supply. b. The central bank decides to increase the money supply by 10%. How much should it increase the monetary base?
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Recession
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education