Consider an economy described by the following equations:
Y=C+I+G
C=120+0.8×(Y−T)
I=5...
Business, 16.10.2020 14:01 breannaasmith1122
Consider an economy described by the following equations:
Y=C+I+G
C=120+0.8×(Y−T)
I=500−50×r G=150
T=125
where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at the natural rate of output), GDP would be $2,850.
Identify the equation(s) each of the following statements describes.
a. It is a function of disposable income.
b. It depends on the interest rate.
The marginal propensity to consume in this economy is: .
Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 3%, so r = 3. When the interest rate is 3%, GDP is $ .
GDP at an interest rate of 3% is the full-employment level.
a. True
b. False
Assuming no change in monetary policy, (a decrease, an increase) in government purchases by would restore GDP to the full-employment level. (Note: Assume that such change in fiscal policy has no crowding-out effect.) Assuming no change in fiscal policy, (a decrease. an increase) in the interest rate by ___ would restore GDP to the full-employment level.
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