ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:Assume that the long-run level of output is Y = 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,
that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is
200
The government is currently implementing a policy
= 80,
T = 50,
and the central bank (CB) is supplying M = 1000.
Expected inflation is a = 0.
Continuing from Part 1, due to the uncertainty surrounding the coronavirus, consumers tighten their belts and consumption function
changes to
C = 40 + 0.8(Y – Ť).
Focus only on the economy's short-run responses, that is, when the price level P cannot adjust.
Fill in the following table for the new values of the nominal interest rate, short-run output, consumption, and investment after the Covid
consumption shock.
I*
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