Question: Please solve and include steps 3 . Consider the following model and again answer related questions. 1 . Y = C + I + G
Please solve and include steps
Consider the following model and again answer related questions.
Y C I G X M
C Y
I r
G
X
M Y
a How much is equilibrium level of income or output if Fed decides to set the rate
of interest at percent r
b In an effort to cool down the economy, the Fed raises the rate of interest to r
By how much will Y change?
c To coordinate the fiscal and monetary policies, assume government decides to
balance the budget by cutting its spending by and at the same time Fed
decides to counter the contractionary effect of cutting spending and lowers the
rate of interest to r Can you predict the change in Y
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