Assume that current GDP (Y) in Utopia is 8,000 and based on the survey data the...
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Assume that current GDP (Y) in Utopia is 8,000 and based on the survey data the current level of consumption (C) is given by the following equation; C = 450 +0.75(DI) The current level of private domestic investment (1) is given by the following equation; 1 = 2,000 - 137.5r where r is the real interest rate in percent. Current taxes are calculated based on following formula: T = 1,000+.1Y Government spending level is fixed at; G = 2,000 and current level of Net Export = 0 a) What is the current prevailing interest rate in this economy? b) Now assume due to technological innovation private sector increases its planned invest to 1 = 3000-150r. What will be the impact of increased investment on the real rate of interest? The impact on the economy (GDP)? c) Based on the current level of GDP (Y) in Utopia, is the level of saving sufficient to support private domestic investment? Do they collect enough tax to support current government expenditure? d) If the policy makers are interested to move the economy to full employment GDP (assume r equal 8), how much the aggregate expenditure need to rise to meet the objective? Which of the aggregate expenditure component would you advise them to increase? Assume that current GDP (Y) in Utopia is 8,000 and based on the survey data the current level of consumption (C) is given by the following equation; C = 450 +0.75(DI) The current level of private domestic investment (1) is given by the following equation; 1 = 2,000 - 137.5r where r is the real interest rate in percent. Current taxes are calculated based on following formula: T = 1,000+.1Y Government spending level is fixed at; G = 2,000 and current level of Net Export = 0 a) What is the current prevailing interest rate in this economy? b) Now assume due to technological innovation private sector increases its planned invest to 1 = 3000-150r. What will be the impact of increased investment on the real rate of interest? The impact on the economy (GDP)? c) Based on the current level of GDP (Y) in Utopia, is the level of saving sufficient to support private domestic investment? Do they collect enough tax to support current government expenditure? d) If the policy makers are interested to move the economy to full employment GDP (assume r equal 8), how much the aggregate expenditure need to rise to meet the objective? Which of the aggregate expenditure component would you advise them to increase?
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GDP Y 8000 TaxT 100001y 10000180001800 Disposable income yd YT8000180062000 I2000... View the full answer
Related Book For
Principles of Risk Management and Insurance
ISBN: 978-0132992916
12th edition
Authors: George E. Rejda, Michael McNamara
Posted Date:
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