The following equations describe a Keynesian model of the economy:
Cᵈ = 500 - 0.5(Y - T)- 100r
Iᵈ ⁼ 350 - 100r
L = 0.5Y - 200i
πᵉ = 0.05,G = T = 200,Y = 1850
M = 3560
a.Find the full-employment equilibrium values of the real interest rate,consumption,investment,and the price level.
b.Suppose government purchases decline to 175,with no change in taxes.What happens to the real interest rate,output,consumption,and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate,consumption,investment,and the price level?
c.Suppose instead that government purchases rise to 225,with no change in taxes,starting from the equilibrium in part (a).What happens to the real interest rate,output,consumption,and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate,consumption,investment,and the price level?
Correct Answer:
Verified
With
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q80: Which one of the following is NOT
Q81: You are the governor of the Central
Q82: Japan experienced a near zero,even negative,economic growth
Q83: Keynesian models rely on the sticky-wage assumption.Explain
Q84: You are the liaison between the Bank
Q86: A Keynesian economy is described by the
Q87: Discuss the major problems that arise in
Q88: Explain the effects of an anticipated fiscal
Q89: What type of expectations hypothesis do the
Q90: Explain how the Keynesian model of business
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents