Consider the following economy. Individuals are endowed with y units of the consumption good when young and nothing when old, but would like to consume in both periods. People face a lump-sum tax of t goods when young and a rate of expansion of the fiat money supply of z > 1. The tax and the expansion of the fiat money stock are used to finance government purchases of g goods for each old person in every period. There are N people in every generation (constant population). (a) Find the individual's budget constraints when young and when old. Combine them to derive the individualís lifetime budget constraint. Explain the results

1. What are so-called heterodox adjustment programs? Are they a sound long-term approach? 2. Use the IS/LM/BP graph to illustrate the effects of a revaluation. Show the fiscal and monetary policy changes that would make it more likely that a revaluation will succeed in eliminating a payments surplus.  

The following equations relate to a certain economy, peruse them and answer thefollowing questions.T = 0.75Y (tax rate)L= Y - 100r (Real money demand)M = 300 (Read money supply)C = 200 + 0.25Y d (Consumption function)I = 20 - 10r (Investment function)G = 30 (government purchases) i) Derive equations fro IS and LM curvesii) Determine the rand y pair at which the two markets are clearing iii) Compute the values of C, I and L.

Consider the following economy: Labor supply: Nt= 90 Capital stock: Kt = 90 Government spending: Gt = 20 Tax collections: Tt = 20 Production function: Yt = 2(Kt)0.5 (Nt)0.5 Real money demand Lt = 2Yt - 200rt Consumption function: Ct = 16 + 0.8(Yd)t Domestic price level: Pt = 4 Investment function: It = 25 - 50rt Nominal money supply: Mt = 1296 Plot (a)-(d) on the IS-LM and AD-SRAS-LRAS diagrams. Make sure to label (i) the axes, (ii) the curves and (iii) the initial equilibrium levels.

Consider a macroeconomic model for an open economy with the government.  Consumption is given by  C = 250 + bYd, where b = 0.8, Yd = (1-t)Y, and t = 0.1.   Investment is given by I = 1,200 – 2,000R, and net export is given by X = 525 – 0.1Y – 500R.   Assume that G = 1,200.      Money demand is given by (Md/P) = 0.1283Y – 1,000R.   Assume that P = 1, and the fixed money supply is given by (Ms/P) = 900. Drive the expression for the IS curve from the model. Drive the expression for the LM curve from the model. Drive the IS-LM equilibrium from the model.

This question has two parts and concerns the permanent income hypothesis. Which statement best defines the permanent income hypothesis?   Consumer spending depends on the level of disposable income that people expect to have over the course of their lifetime. When in a recession, although current consumer spending can be observed, future consumer spending cannot be predicted due to an unknown number of people leaving their temporary recession jobs for higher‑paying, permanent jobs that better fit their skills. Consumer spending depends on both the income and wealth of people in the economy. Consumer spending is proportional to the ratio of people in stable full‑time employment (that is, with "permanent" income) and people in unstable part‑time employment (that is, with "temporary" income).   According to the permanent income hypothesis, which situations would result in an immediate increase in consumer spending, which would result in an immediate decrease in consumer spending,…

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Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. What will be the result of an increasing government consumption expenditure in this module, if not other paramiters are changed? a. Lower investment. b. Higher employment. c. Higher inflation. d. Lower employement.

The US economy slowed significantly in early 2008, and policy makers were extremely concerned about growth. To boost the economy, Congress passed several relief packages (the Economics Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009) that combined would deliver about $700 billion in government spending. Assume, for the sake of argument, that this spending was in the form of payments made directly to consumers. The objective was to boost the economy by increasing the disposable income of American consumers. a. Calculate the initial change in aggregate consumer spending as a consequence of this policy measure if the marginal propensity to consume (MPC) in the US is 0.5. Then calculate the resulting change in real GDP arising from $700 billion in payments. b. Illustrate the effect on real GDP with the use of a graph depicting the income-expenditure equilibrium. Label the vertical axis "Planned Aggregate Spending, AE planned" and the horizontal axis "Real GDP."…

Consider the basic Macroeconomic model involving:        Private sector consumption: C = co+c1(Y-T); Y = GDP, T = Taxes        Tax function: T = to+t1Y        Business sector investment: I = io+i2r, r=interest rate        Government spending: G = Go        Exports: X = xo+x1x; x = Exchange rate of the dollar        Imports: M = mo+m1Y+m2x; x = Exchange rate (a) Identify and explain the parameters: co, t1, i2, and m2. (b) Solve this model for the equilibrium GDP (Y*).