Consider an economy in which government purchases, taxes, and net exports are all zero. The consumption function is C = 300 +.75Y and investment spending (I) depends on the rate of interest (r) in the following way: I = 1,000 - 100r Find the equilibrium GDP if the Fed makes the rate of interest (a) 2 percent (r=0.02), (b) 5 percent, and (c) 10 percent.

Consider an economy in which government purchases, taxes, and net exports are all zero. The consumption function is C = 300 +.75Y and investment spending (I) depends on the rate of interest (r) in the following way: I = 1,000 - 100r Find the equilibrium GDP if the Fed makes the rate of interest (a) 2 percent (r=0.02), (b) 5 percent, and (c) 10 percent.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section: Chapter Questions

Problem 4DQ

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