1. Let the following equations characterize the economy (note the addition of a tax rate on output): Y = 500 C = 60 + 0.8(Y-T) |= 30 -r G = 100 T= 0.4Y a) Calculate national saving, private saving, and public saving. b) Obtain the mathematical expression for the AD in this particular economy. Draw the graph. c) Determine the equilibrium interest rate (you can use the loanable funds market). Draw the graph for the lonable funds market. d) If Government spending increases to 120, what is the effect on income? Draw the new equilibrium in a graph (old and new in same graph).
1. Let the following equations characterize the economy (note the addition of a tax rate on output): Y = 500 C = 60 + 0.8(Y-T) |= 30 -r G = 100 T= 0.4Y a) Calculate national saving, private saving, and public saving. b) Obtain the mathematical expression for the AD in this particular economy. Draw the graph. c) Determine the equilibrium interest rate (you can use the loanable funds market). Draw the graph for the lonable funds market. d) If Government spending increases to 120, what is the effect on income? Draw the new equilibrium in a graph (old and new in same graph).
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section9.A: The Simple Algebra Of Income Determination And The Multiplier
Problem 4TY
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