Suppose the economy can be described by the following equations:

C = 600 + 0.45(Y – T); I = 450 + 0.05Y – 500 (r + x); G = T = 1000; x = .04

a. What is the Is equation of this economy?

b. Suppose the economy is initially at the medium-run equilibrium, so that Y = Y _a . If r _{n = 6%}

_(.06), What is Y _n ?

c. Now suppose there is a severe demand shock and financial shock, with C ₀ falling by 100, b ₀ falling by 50, and an increase in the risk premium of 0.02. What is the new is equation for the economy? what is the new level of y is there is no change in the CB’s policy rate r?

Answer rating: 100% (QA)

a y c I G 600 045 y 1000 450 005 y 500 x 04 1000 y 600 045y 450 450 005y 500 x y 045 ... View the full answer