An economy has full-employment output of 5000.Government purchases are 1000.Desired consumption and desired investment are given by
Cd = 3000 - 2000r + 0.10Y
Id = 1000 - 4000r
where Y is output and r is the expected real interest rate.
(a)Find the real interest rate that clears the goods market.Assume that output equals full-employment output.
(b)Calculate the amount of saving,investment,and consumption in equilibrium.
(c)If a shock to wealth causes desired consumption to decline by 200 (so that the new equation for desired consumption is Cd = 2800 - 2000r + 0.10Y),find the equilibrium real interest rate,saving,investment,and consumption.
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q93: The saving-investment diagram shows that a higher
Q94: A temporary decrease in government purchases would
Q95: David consumes 140 in the current period
Q96: If the stock market booms and people
Q97: If the government reduces the effective tax
Q99: If consumers foresee future taxes completely,a reduction
Q100: Onerous regulations on businesses that take effect
Q101: Suppose the government provides a tax cut
Q102: For a borrower,an increase in the real
Q103: If Claudette gets a permanent increase in
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents