QUESTION ONEAssume that an economy is represented by the following system of equation:C = C₁(Y-T)I = bo + b₂Yb₂iMaP= C-a *iG = GoT = ToAssume that a, bo, b₁,b₂, and c₁ are all positive and that b₁ + b₂ < 1. For simplicity assume that P = 1Important: Note that unlike in the short run model we have saw in class, money demand depends onconsumption, and not on total output.A. Derive an equation for the aggregate demand or the IS-curve in this closed economy and derivean expression for the slope of the IS as showing the relationship between interest rate andoutputB. Derive an equation for the LM curve and derive an expression for the slope of an LM curve andshow the relation between interest rate and outputC. Find an expression for equilibrium output and interest rates using answers in questions A and B. D. There is a sudden drop in business confidence, and firms decide suddenly to invest less for anylevel of output and interest rates. From this question onward, the new behavior of firms obeysthe following equation:I = b0 A + b₁Y - b₂i with A> 0Find the new IS relation (call it IS₁). Show graphically the new equilibrium output and interestrates. Call the new equilibrium output Y1.E. Now suppose the government wants to counterbalance the effect of the drop in investors'confidence on GDP using government spending as a policy instrument. Should the governmentincrease or decrease G? What new level of government spending G1 should the governmentchoose to completely offset the effect of lower business confidence?F. Suppose now the government cannot use fiscal instruments (G or T) because Congress wouldnot allow it. The Central Bank decides to use monetary policy to restore the original equilibriumoutput Yo. Should the Central Bank increase or decrease M,? Draw the new equilibrium after thechange in money supply.

*Hi there , as per our guidelines we are solving first three sub parts . Kindly repost the remaining…

Assume that an economy is represented by the following system of equation: C = C₁(Y-T) I= bo + b₂Yb₂l Mª P =C-a*t G = Go T = To Assume that a, bo, b₁,b₂, and c₁ are all positive and that b₁ + b₂ < 1. For simplicity assume that P = 1 Important: Note that unlike in the short run model we have saw in class, money demand depends on consumption and not on total output

Assume that an economy is represented by the following system of equation: C = C₁(Y-T) I= bo + b₂Yb₂l Mª P =C-a*t G = Go T = To Assume that a, bo, b₁,b₂, and c₁ are all positive and that b₁ + b₂ < 1. For simplicity assume that P = 1 Important: Note that unlike in the short run model we have saw in class, money demand depends on consumption and not on total output

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

10.14 Total economic output in three years. The n - vector xt denotes the economic output of a country in n different sectors, in yeart. An economist models the economic output using a linear dynamical system model xt+1 = Axt, where A is an n \times n matrix. Assuming her model is correct, find an expression for the total economic output in yeart + 3, in terms of xt and A. (The total economic output is the sum of the economic output in the n sectors.)
Assume an economy were characterized by the following equations C = C + bYD I=Ī - di G=G T=T X=X IM= Z +fY MD= a + Bi+yY MS=Ⓒ P = 1 (1) (2) (3) (4) (5) (6) (7) (8) (9) where the notation denoting parameters C,b,1,d,e,G,T,X,Z,f,a, ß,y, are all positive and YD denotes disposable income. We assume that 0
Assume that an economy is based on three industrial sectors: agriculture (A), building (B), and energy (E). The technology matrix M is: A BE uarruarruarr (4 [0.6 0.2 0.1 0.4 0.1 0.1 0.4] 0.1 0.1 B 0.1 M How much input from A, B, and E are required to produce a dollar's worth of output for B? How much input from A is required to produce a dollar's worth of output for B? How much input from B is required to produce a dollar's worth of output for B? How much input from E is required to produce a dollar's worth of output for B ? Assume that an economy is based on three industrial sectors: agriculture (A), building (B), and energy (E). The technology matrix M is: A BE ↑ ↑ ↑ A-> 0.6 0.2 0.1 B-> =M 0.1 0.4 0.1 E-> 0.1 0.1 0.4 How much input from A, B, and E are required to produce a dollar's worth of output for B? How much input from A is required to produce a dollar's worth of output for B? How much input from B is required to produce a dollar's worth of output for B? How much input from E…
i Suppose that the economic model is wage = Bo+B₁exper+B₂exper² + ε. In the terminology of this class, is this a linear model? ii Suppose that the economic model is wage = 80+ experi Bo In the terminology of this class, is this a linear model? + E.
Consider an H-O economy in which there are two countries (US and France), two goods (wine and cheese) and two factors (capital and labor). In each question below you are given partial information about the model and asked to infer some other part. Treat each question separately and independently. 1. Suppose a decrease in the price of cheese causes a decrease in the wage rate in the US economy. Which factor is used intensively in cheese production in France? Which H-O theorem is used to get this answer? Explain. 2. Suppose France exports wine, the capital-intensive good. Which factor benefits from free trade in the US? Explain. 3. Suppose workers in France benefit when tariffs are increased on cheese imports. Which factor is used intensively in cheese production? What is France's abundant factor? Explain.
This question requires you to solve a macro model algebraically. Reading the appendix to this chapter will help you to answer this question. But, just in case, we lead you through it step by step. The equations for the model are as follows: i) C = c + MPC × YD consumption ii) I = I0 investment iii) G = G0 government purchases iv) T = tY net tax revenue v) X = X0 exports vi) IM = mY imports a. Step 1: Recall that Y D = Y – T. By using this fact, substitute the tax function into the consumption function and derive the relationship between desired consumption and national income. b. Step 2: Sum the four components of desired aggregate expenditure ( C, I, G, NX). This is the aggregate expenditure ( AE) function. Collect the autonomous terms separately from the induced terms. c. Step 3: Recall the equilibrium condition, Y = AE. Form the equation Y = AE, where AE is your expression for the AE function from part (b). (Your autonomous terms can be collectively labelled A and the terms that…
6. Derive the functional form of the IS curve for the following economy: [Hint: Use the equilib- rium condition and isolate Y on LHS and all other terms on RHS, i.e., Y = ISo + IS1(r)] C = C, + C(Y – T),G = Ğ,I = I, – I,(r),T = T
2) The below five graphs show the development of key macroeconomic variables over the scope of three years in a certain country. Use them to draw an IS-LM-PC graph that captures the development in this country. Explain carefully what has happened. G Y t 3) China currently (2016) has a household saving rate of about 36 %. It has never been below 27 % in the last 30 years. What role do you think this high saving rate has for China's economic success? It has been argued that the low standard of living in many less developed countries depend on their poor institutions. Explain carefully what kind of "institutions" this argument refers to. 4) 5) The Swedish Fiscal Policy Council discusses public debt policy in a low interest environment in their latest report. The argue that "there are strong arguments in favour of low public debt despite low interest rates. For private operators, it may be rational to increase debt in a low interest rate climate, but this is not necessarily the case for…
See Figure 2.2 and examine the model. Unlike other circular flow models, this model is missing another sector/s. what is the missing sector?
Please help me with this macroeconomic question 4!
The long run macroeconomic performance of an economy can be reflectedfrom the changes of her major macroeconomic indicators. With appropriateinterpretations of the changes to these indicators, one can identify the inherentstructural features of an economy, and hence, identify her strengths andweaknesses. In about 250 words, write a short essay on ONE economy from the list below:i. Singapore;ii. The United Kingdom;iii. The United States.In your essay, describe the changes of major macroeconomic indicators fromthe last decade. Using them to illustrate major structural features of the choseneconomy. Based on the above, identify ONE inherent problem implied bythese structural features that might limit her macroeconomic performance inthe long run. Suggest ONE practical government policy in dealing with thisinherent problem.
(1)Consider the following macroeconomic model of an economy. Y = C +1+G+ NX.. . C = 250 + 0.75Y 500R... | = 1000 - 1000R.... G = Go... .. ....(1) ( Income Identity) (2) (Consumption function) .(3) (Investment function) (4) (Government Expenditure) NX = 500 - 0.10Y - 500R... (5) (Net Export function) %3D (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.