MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Chapter 9, Problem 6TY
To determine
To calculate: The equilibrium level of
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6. Consider the following economy: C= 100+0.8Y, I = 200, G = 125, NX= 75. (a) Compute the
equilibrium GDP
(b) If the government decides to increase the spending by $30, how much will be the impact
on equilibrium GDP? (Hint: Spending multiplier = 1/1 - MPC)
1. (a) The following equations describe an economy:
C-100+ 0.75Yd
I-50-25r
T-G-50
Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is
taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the
economy. Show the area of excess demand and excess supply in the goods market.
(b) Draw the graph and explain the derivation of IS curve.
2. (a) Given the following data about the monetary sector of the economy:
Ma -0.4Y-80r
M₁ - 1200 million
Where, Ma is demand for money, Y is the level of income, r is the rate of interest and
M, is the supply of money.
Derive the equation for LM curve and give the economic interpretation of this curve.
Show the excess demand and excess supply in the money market.
(b) Draw the graph and explain the derivation of LM curve.
3. Consider the following economy:
C-100+ 0.8Yd
I-50-25,
G-T-50
M'
P
-200
M₁-Y-25r
1. Calculate the IS and LM curves.
2. Calculate the equilibrium levels of output (national…
33)Consider the following consumption function: C = 800 + 0.75 YD for the fictitious economy of Zapland. If the government increases its purchase of goods and services by $200 million, what is the change in GDP? Assume that there is no increase in the price level. (Note negative means decrease)
Select one:
a. $2,000 million
b. $800 million
c. $400 million
d. -$800 million
e. -$1,000 million
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