a.
To describe: The full employment values of real interest rate, consumption, investment and the price level.
a.
Answer to Problem 6NP
The full employment value of real interest rate is
Explanation of Solution
Given data,
Desired Consumption | |
Desired Investment | |
Government purchases | |
Taxes | |
Full employment output | |
Money supply | |
Real money demand |
Whereas, the formula used is as under:
Substitute the values from above to the equation, we get:
And,
Formula used to calculate price level is as under:
Substitute M=6000 and
Calculation of desired consumption is as under:
Substitute, the value of Y=1000, T=150 and r= 0.10, in the above equation:
And,
b.
To compute: The values of the
b.
Answer to Problem 6NP
The values of the
Explanation of Solution
Given data,
Using these equations,
And,
Then,
And,
c.
To describe: The values under short run equilibrium for output and real interest if the price level is fixed at $
c.
Answer to Problem 6NP
The value under short run equilibrium for output is
Explanation of Solution
Given data,
Desired Consumption | |
Desired Investment | |
Government purchases | |
Taxes | |
Full employment output | |
Money supply | |
Real money demand |
Whereas, the formula used is as under:
Substitute the values from above to the equation, we get:
And,
Formula used to calculate price level is as under:
Substitute M=6000 and
d.
To describe:
The short-run equilibrium level of output and
d.
Answer to Problem 6NP
The short-run equilibrium level of output is
Explanation of Solution
Given data,
The formula used here is,
Therefore,
And,
To calculate equilibrium output the following formula is used:
Substitute the values from above:
e.
To describe:
The government purchases multiplier, given that
e.
Answer to Problem 6NP
The government purchases multiplier is
Explanation of Solution
Formula for purchases multiplier:
Given information as calculated above,
Substitute the above information in the equation:
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