Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 9, Problem 5RQ
To determine
To explain: The concept of general equilibrium and the determinants of the real interest rate and the output in a situation where there is no equilibrium.
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Q.1.7
In the Keynesian macroeconomic model, the equation for the savings function is
given as: S = -420 + 1/4Y. Based on this information, which of the following
statements is correct?
(1) The marginal propensity to consume is 1/4;
(2) The marginal propensity to save is -420;
An economy is described by the following equations:
C= 60 +0.75 (Y - T)
IP= 100
G= 150
NX= 30
T= 180
Y*= 760
The multiplier in this economy is 4.
a. Find a numerical equation relating planned aggregate expenditure to output.
Instructions: Enter your response for mpc rounded to two decimal places.
PAE=
b. Construct a table to find the value of short-run equilibrium output.
Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.
Planned aggregate
Output Y
expenditure (PAE)
Y - PAE
620
720
820
920
1,020
Short-run equilibrium output is
c. By how much would government purchases have to change in order to eliminate any output gap? By how much would taxes have to
change?
In order to eliminate any output gap, government purchases would have to be reduced
by
In order to eliminate any output gap, taxes would have to be increased
by
d. If Y*=856, then by how much would government purchases have to change in order to eliminate any…
A closed economy is described by the following system of equations:
C = 40+0.5YD
L(Y.i) = 5Y - 40i
M =100
P =1
T =G= 20
I =
= 200– 20i
a) Derive the equations of the IS and LM curves and determine the equilibrium income and
the equilibrium interest rate.
b) The state increases VAT tax by a certain rate. How are the equilibrium income and interest
rate affected by this measure? Explain and show graphically.
c) If there is a rise in a marginal propensity to save, what happens to the multiplier and
equilibrium income?
d) Explain how interest rate differentials between countries can affect the exchange rate.
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- An economy is described by the following equations: C = 80+ 0.9 (Y-T) IP = 100 G = 150 NX = 30 T = 180 Y* = 1,800 The multiplier in this economy is 10. a. Find a numerical equation relating planned aggregate expenditure to output. Instructions: Enter your response for mpc rounded to one decimal place. PAE = + Y b. Construct a table to find the value of short-run equilibrium output. Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Output Planned aggregate expenditure Y (PAE) 1,780 1,880 1,980 2,080 2,180 Y- PAE Short-run equilibrium output is . c. By how much would government purchases have to change in order to eliminate any output gap? By how much would taxes have to change? In order to eliminate any output gap, government purchases would have to be (Click to select) reduced increased by. In order to eliminate any output gap, taxes would have to be (Click to select) increased reduced by . d. If y* = 2,070, then by…arrow_forwardWhen the economy is out of general equilibrium, which of the three curves (FE, IS, LM) shifts to return the economy to general equilibrium? What causes this curve to shift?arrow_forwardAssume an economy is currently operating at point A. What key policy recommendations would you make for an economy like this one that is currently operating at point A? Justify why you believe this is appropriate policy.arrow_forward
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