ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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6. Assume that an economy is described by:
IS Curve:
LM Curve:
Investment function:
Consumption function:
Y = 3,600 + 3G − 2T - 150r
2M
Y = + 100r
P
I = 1,000 - 50r
C = 200+ (Y-T)
3
Long-run equilibrium output for this economy is 4,000 and the price level is 1.
(a) Assume that the government spending is fixed at 1,200. The government wants to
achieve a level of investment equal to 900 and achieve Y = 4,000. What level of r is
needed for I 900? What levels of T and M must be set to achieve the two goals?
What will be the levels of private saving, public saving, and national saving?
=
(b) Now assume that the government wants to cut taxes to 1,000. With G set at 1,200,
what will the interest rate be at Y = 4,000? What must be the value of M? What
will I be? What will be the levels of private, public, and national saving? Explain.
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Transcribed Image Text:6. Assume that an economy is described by: IS Curve: LM Curve: Investment function: Consumption function: Y = 3,600 + 3G − 2T - 150r 2M Y = + 100r P I = 1,000 - 50r C = 200+ (Y-T) 3 Long-run equilibrium output for this economy is 4,000 and the price level is 1. (a) Assume that the government spending is fixed at 1,200. The government wants to achieve a level of investment equal to 900 and achieve Y = 4,000. What level of r is needed for I 900? What levels of T and M must be set to achieve the two goals? What will be the levels of private saving, public saving, and national saving? = (b) Now assume that the government wants to cut taxes to 1,000. With G set at 1,200, what will the interest rate be at Y = 4,000? What must be the value of M? What will I be? What will be the levels of private, public, and national saving? Explain.
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