Find real interest rate and nominal interest rate, Macroeconomics

Assignment Help:

Assume that an economy's GDP Y=5000. Also assume that the government runs a deficit where tax revenue T=1000 and government expendituresG= 1500. The consumption function is represented by the following equation:

C = 1200+0.25(Y-T) 

Investment depends on the interest rate which is represented by the following equation:

I(r) =1500-50r

Assume that nominal money grows at 3%, the demand for real money balances is represented by the following equation:

(m/p)D = 0.2Y-120i

Answer the following questions:

a)     In the long run, what will be the equilibrium real interest rate in this economy?

b)     Assume that expected inflation rate is the money growth rate. What is the nominal interest rate in this economy?

c)     Find the price level in this economy, in the long run.

d)    What is the marginal propensity to consume?

e)    What proportion of income will individuals want to hold as money?

f)     Find the new real interest rate, nominal interest rate, and price level, if the government balances the budget by increasing taxes.


Related Discussions:- Find real interest rate and nominal interest rate

Illustrate biological effects of ochratoxin, Q. Illustrate Biological effec...

Q. Illustrate Biological effects of Ochratoxin? Biological effects: It is associated with the chronic progressive kidney disease in humans known as Balkan endemic nephropathy.

What are the crisis affect the economies of country, What are the crisis af...

What are the crisis affect the economies This crisis would affect the UK in 3 major ways. First the UK would be unable to sell its exports to these economies if they are hea

Trade-fdi nexus, Trade-FDI Nexus: Economic liberalization promotes bot...

Trade-FDI Nexus: Economic liberalization promotes both trade and FDI. FDI could be export-promoting, import substituting or import enhancing depending upon supply and demand f

Perfectly competitive firm, Explain why P=MC in the short-run equilibrium o...

Explain why P=MC in the short-run equilibrium of the perfectly competitive firm, whereas in the long-run equilibrium P=MC=AC.

Supply function for product, Suppose the supply function for product X is g...

Suppose the supply function for product X is given by Qsx = -50 + 0.5Px - 5Pz. A. How much of product X is produced when Px = $500 and Pz = $30? B. How much of product X is p

Simple regression analysis uncover the ceteris paribus, Let kids denote the...

Let kids denote the number of children ever born to a woman, and let educ denote years of education for the woman. A simple model relating fertility to years of education is kids =

General principles of marginal and average total cost curves, What are the ...

What are the general principles about marginal and average total cost curves? General principles which are always true concerning a firm’s marginal and average total cost curve

GDP, Whenever real GDP declines, nominal GDP must also declin

Whenever real GDP declines, nominal GDP must also decline

Pat, Explain the concept of diminishing returns to labor.

Explain the concept of diminishing returns to labor.

Staic general equilibrium model, given the consumer maximizing problem subj...

given the consumer maximizing problem subjest to consumption, the firm''s maximizing problem subject to revenue as a function of labour demand, and the government''s budget as G=T.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd