Suppose the economy is described by the following (assume no international trade) C = 200 + 0.8(Y – T) G = 200 T = 100 I = 150 – 1000r What happens to equilibrium GDP in the short run when interest rate goes down? Question 44 options: increases decreases stays the same
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Consider the following short-run closed economy IS-LM model described by equations (1) through (6): (1) C = 175 + 0.75(Y - T); (2) T = 700; (3) G = 450; (4) I = 850 - 20r; (5) Y = C + I + G; (6) M/P = 0.5Y - 50r where the nominal money supply M = 1135 and the price level is P = 1. Equation (5) is the goods market equilibrium condition (IS equation), while equation (6) is the money market equilibrium condition (LM equation). Suppose that government expenditures increase by 150 units but that the Bank of Canada uses monetary policy to maintain the interest rate constant. Then this increase in government spending will cause: a. an increase in equilibrium output by 400 units and an increase the money supply by 200 units. b. an increase in both the equilibrium output level and the money supply by 200 units. c. the equilibrium output to remain the same, but the money supply to increase by 100 units. d. an increase in equilibrium output by 600 units and an increase the money supply by 300 units.
Akash M.
Andrew D.
Y = K^0.5L^0.5, with K = 10,000, and L = 400. The consumption function is C = 0.6(Y - T), G = 500, T = 0.25Y, and I = 1,000 - 40r. If government spending falls to 420, then the real interest rate will _____, and investment will rise by 80.
Aarya B.
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