QUESTION 18 For this question. Complete your answers using pen and paper. Then scan or photograph your work. Add the pictures to a Word document and upload your document. Suppose a closed economy is characterised by the following equations: Consumption: $C = 10 + 0.6(Y - T)$ Investment: $I = 5 + 0.3Y - 100i$ Government spending: $G = 15$ Taxes: $T = 10 + 0.1Y$ (a) Calculate the equilibrium output for this economy if $i = 0.1$ (2 marks) (b) What is the value of this economy's multiplier? (1 marks) (c) Derive the IS curve equation for this economy. (2 marks) (d) Discuss the effects of fiscal policy in an open economy using a suitable graph/s. (3 marks) Attach File Browse My Computer
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Y = C + I + G Substituting the given equations for C, I, G, and T: Y = (10 + 0.6(Y - T)) + (5 + 0.3Y - 100i) + 15 Simplifying the equation: Y = 10 + 0.6Y - 0.6T + 5 + 0.3Y - 100i + 15 Combining like terms: Y = 0.9Y - 0.6T - 100i + 30 Rearranging the Show more…
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Question 3. (18 points) Assume that an economy is characterized by the following equations: C = 100 + (2/3)(Y - T) T = 600 G = 500 I = 800 - (50/3)r Ms/P = Md/P = 0.5Y - 50r Write the numerical IS curve for the economy, expressing Y as a numerical function of G, T, and r. (4 points) Write the numerical LM curve for this economy, expressing r as a function of Y and M/P. (4 points) Solve for the equilibrium values of Y and r, assuming P = 1.0 and M = 1,200. How do they change when P = 2.0? Check by computing C, I, and G. (6 points) Write the numerical aggregate demand curve for this economy, expressing Y as a function of G, T, and M/P. (4 points)
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An economy has a consumption function of C = 20 + 0.75(YD), taxes = 20, investment equal to 10, government expenditure equal to 15, exports equal to 15, and an import function of M = 0.2Y. There are no marginal taxes. 45) What is the equation for the aggregate expenditure curve for this economy? A) AE = 60 + 0.55Y B) AE = 55 + 0.45Y C) AE = 45 + 0.55Y D) AE = 25 + 0.75Y E) AE = 55 + 0.45Y 46) What is equilibrium real GDP for this economy? A) 100 B) 166.67 C) 180 D) 81.82 E) 144.44 47) What is the multiplier for a change in government spending for this economy? A) 2.22 B) 1.82 C) 1.33 D) 4 E) 1
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