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- 16 100% 3 7 4 Consider the economic model: Yt Ct + it Ct myt-1 act-1 where y is GDP, c is consumption, i is investment, m and a are multipliers. (i) Write down a difference equation for y (ii) Find the condition under which the steady state exists, and find the steady state solution (iii) Find the condition under which the system converges to the steady state (iv) Find the condition under which y will show sinusoidal (cyclical) pattern (This occurs when the roots of the characteristic equation are complex "6²-4ac < 0") ERMT Problem Paper 01 28°C Light rain || || 3 hpConsider the following model of an economy operating with fixed wages, prices and interest rates and hasexcess capacity. Adsume all figures are I Zambian kwacha. C=100+0.8yd, T=100+25Y, G=980 and I= 500 Where c is consumption, yd is disposable income, T is taxes net of transformers, G is government spending on goods and services and I is investments. A. Calculate the equilibrium level of national income B. Illustrate your equilibrium in the keyneasian cross diagran C. What is the value of the multiplier D. Is governnent running a surplus or a deficit E. Show the impact of a reduction in government spending by 80 on the equilibrium level of national income F. Illustrate your new equilibrium in the same Keynesian cross diagram as in b.Consider an economy called Xanadu for which desired aggregate consumptiondepends on income, Y. and the real interest rate, r, according toCd =100+0.7Y - 200r.Xanadu's GDP is Y = 1000 and government spending on goods and services is G=180. Xanadu's desired future capital stock is given byK* = 140 - 100ucwhere luCdenotes the user-cost of capital. The price of capital is PK =2, thephysical depreciation rate is d =0.1 and the existing capital stock is K0= 50. Trapital stock between any period t and the following period t+1 evolves accordng toKt+1 = It+(1-d)Kt where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero.Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal toA) -16B) -51C) -6D) -8
- In each of the following cases, determine whether the IScurve shifts to the right or left, does not shift, or is indeterminate in the direction of shift.a. The real interest rate rises.b. The marginal propensity to consume declines.c. Financial frictions increase.d. Autonomous consumption decreases.e. Both taxes and government spending decrease by thesame amount.f. The sensitivity of net exports to changes in the realinterest rate decreases.g. The government provides tax incentives for researchand development programs for firmsConsider a one-period economy which experiences the destruction of some of the nation’s capital stock (say through a hurricane is de- stroyed). How should this effect equilibrium, consumption, output and labor supply? Now, let’s say the government tries to offset some of the declines in capital on output and hours worked by increasing govern- ment spending. What is the likely outcome of this policy intervention in terms of consumption? In our model, the affects of changes on wages are ambiguous because the income and substitution effects move in opposite directions. How do (many) macroeconomists deal with this ambiguity in terms of study- ing business cycle? How do economists resolve this ambiguity when studying long term economic development? Consider an economy with a straight line PPF. Show how an increase in government spending paid for by an increase in lump sum labor taxes affects outcomes. Do the same for an increase in government spending financed by a proportional income…QUESTION 2 Consider the closed-economy market-clearing model. Assume that the marginal propensity to consume is 0.8. Tax revenue decreases by $5 billion, while output and government spending remain the same (a) Calculate the dollar change in consumption. (b) Calculate the dollar change in national saving. (c) Does the equilibrium real interest rate increase, decrease, or stay the same? n toolhar nress ALT+F10 (PC) or ALT+FN+F10 (Mac).
- You work for the International Monetary Fund in Washington DC, mon- itoring Singapore's real consumption expenditures. Using a sample of quarterly real consumption data (measured in billions of 2005 Singapore dollars), Yt, t = 1990.1, 2006.4, you estimate the linear consumption .... trend model, Yt = Bo + B1TIME + Et, where & ~ iidN(0, o²), obtain- ing the estimates Bo = 0.51, B1 2.30, and ô? 16. Based upon your estimated trend model, construct feasible point, interval and density forecasts for 2010.1. a Find the exact value of the point forecast 2010.01. b Provide the distribution of the density forecast at 2010.01. c Provide interval forecasts for 68% and 90% confidence levels.I have to analyze, using the IS-LM model, the macroeconomiceffects of an increase in savings in the short term and its implications for long-term growth. Specifically, I have to suppose that households (consumers) lose confidence and start saving more for any level of disposable income. Can you plase answer the following question (using graphs where possible): In terms of total savings and, therefore, of potential long-term growth, is a flat LM curve or a positive sloping LM curve better?Consider the Inter-temporal Model with two time periods, t=0 and t=1. Home is a small open economy that can borrow and lend in the first period at the world real interest rate of 5%. In the first period, output is Yo = 100 and in the second period Y1 = 100. The country wants to smooth consumption as much as possible. The country ended period t=-1 with positive external assets, W-1 = 50. %3D What is the value of the current account in period O and period 1? Also, what is the value of net factor income from abroad in period 1? What is the value of the trade balance in period O and period 1?
- Let's say that Americans decide that home ownership isn't worth it anymore; instead, they all just move in with their parents. If Americans quit buying homes, this will cause AS to shift leftward due to a drop in consumption AS to shift leftward due to a drop in economic investment AD to shift leftward due to a drop in consumption AD to shift leftward due to a drop in economic investment is a venent policy ait illaue by a computer. Ine interest rate, amount to buy or sell in open market operations, etc., are all determined by an equation put into the computer. This approach is not supported by any American economists based on discretion O called rule-based policy described by all listed optionsAssume that in 2016, the followng prevals n the Republic of Nurd Goverment spending (0) 50 Not taxos (T)- 50 Planned investment - S30 Assume that househoids in Nurd censume 75 percent of heir income, they save 25 percent of their income. Thun, the consumption function and saving function of Nurd re C-075Y, and S=025Y. where disposabile income YY-T Determine the equilitrium level of income Equilibrium income =$(Enter your reaponse as an integer.)1Why low rate inflation is considered necessary for economic grwoth? Oa It does not affect the purchasing power of wages Ob. It indicates that the currency is in continuous demand by the people Oc taffects only the rich and not the poor Od itact as an incentive to boost in supply in the economy 2When the economy is in Keynesian macroeconomic equilibrium, planned investment is greater than actual investment. O a False O b. True 3Government fixes the floor and ceiling price which will not allow the producers to increase the price on their wish, this is a type of. O a Physical control called price pegging O b. Monetary policy control measures O. Physical control called price tagging Od. Fiscal policy control measures O e None 4Rising output coupled with falling prices is called stagflation O a. False O b. True 5The Value of marginal propensity to consume lies O a. O to 1 O b. Less than zero Oc -1 to 1 Od. Between O to 1 6The Central Bank way to control inflation is Oa Monetary policy…