Consumption function of an economy, Macroeconomics

The consumption function of an economy is given by

c = 200+0.75(y-t)

And the investment function by

I = 200 = - 25r.

Government purchases G and taxes Τ are both 100.  The money demand function is given by

(M/P)D = y - 100r

The money supply Μ is 1,000 and the price level P is 2.

(a) Calculate the equilibrium interest rate r and the equilibrium level of income Y.

(b) Suppose that government spending is raised to 150. What are  the new equilibrium interest rate and the new equilibrium income? By how much does the IS curve shift?

(c) Suppose that instead the money supply is raised from 1,000 to 1,200. What are the new equilibrium interest rate and the new equilibrium income? By how much does the LM curve shift?

Posted Date: 3/15/2013 2:32:10 AM | Location : United States







Related Discussions:- Consumption function of an economy, Assignment Help, Ask Question on Consumption function of an economy, Get Answer, Expert's Help, Consumption function of an economy Discussions

Write discussion on Consumption function of an economy
Your posts are moderated
Related Questions
Q. Investment demand of the AS-AD model? Investment demand. As long as we keep nominal interest rate (and thus real interest rates) constant, there is no reason for demand for

Composition and Direction of Trade: The impact of trade reforms can be observed from the changing structure of India's  foreign  trade in  terms of diversity  of  production

Q. What do you mean by Price index? Because we are only interested in percentage change of the price level and not particular value, we can divide every price level by a given

In order to estimate the VAR, I have firstly to specify the data which will be analysed. As it is my aim to observe the correlations between oil prices and key macroeconomic variab

Use the points on the graph below to answer the following questions. i)   What is Ep along D1 (from A to B)? ii)  What is the Ep along D2 (from X to Y)? iii) What are

One alternative way to calculate the total change in money supply when the Fed injects money into the economy or takes away money from the economy is the amount of money injected o

Once Y is determined, almost all of the other variables are determined since they are either exogenous or they depend on Y. From Y we can determine C by consumption function, I m

A perfectly competitive painted necktie industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at

There are a lot of mosquitoes in the island of Liholiho. Only two people live in this island, Robinson Crusoe and Man Friday. Their respective demand curves for mosquito control ar

Introduction of labour market A vital macroeconomic variable is the total amount of labor which is used in a certain time period. Amount of labor and amount of capital are sig