Consider first the goods market model with (exogenously given) constant investment. Consumption is given by I. Consider
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Consider first the goods market model with (exogenously given) constant investment. Consumption is given by
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I. Consider first the goods market model with (exogenously given) constant investment. Consumption is given by C = Co + C₁ (Y-T) and I, G, and T are given. a. Solve for equilibrium output. What is the value of the multiplier? Now let investment depend on both sales and the interest rate: 1 = b + b₂Y -b₂i b. Solve for equilibrium output. At a given interest rate, is the effect of a change in autonomous spending bigger than what is was in part (a)? Why? (Assume c₁ + b₁ < 1.) Next, write the LM relation as M/P = d₂Y-d₂i c. Solve for equilibrium output. (Hint: Eliminate the interest rate from the IS and LM relations.) Derive the multiplier (the effect of a change of one unit in autonomous spending on output). I. Consider first the goods market model with (exogenously given) constant investment. Consumption is given by C = Co + C₁ (Y-T) and I, G, and T are given. a. Solve for equilibrium output. What is the value of the multiplier? Now let investment depend on both sales and the interest rate: 1 = b + b₂Y -b₂i b. Solve for equilibrium output. At a given interest rate, is the effect of a change in autonomous spending bigger than what is was in part (a)? Why? (Assume c₁ + b₁ < 1.) Next, write the LM relation as M/P = d₂Y-d₂i c. Solve for equilibrium output. (Hint: Eliminate the interest rate from the IS and LM relations.) Derive the multiplier (the effect of a change of one unit in autonomous spending on output).
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Quiz a Solve for equilibrium output Y c O c 1 YT I G therefore Y11c 1 c 0 c 1 TIG What is the value ... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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