Suppose the basic consumption level of Primaland is $10,000 million and that the MPC is 50%...

  

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Suppose the basic consumption level of Primaland is $10,000 million and that the MPC is 50% of the disposable income. Government spending there is $ 5,000 million. Taxes are per head and a function of income with T=3000+0.1Y. Investment is a function of income and interest at I=4000+0.3Y-50,000r. Interest is 5% and Exports and Imports are both at $2000 million so trade is balanced. Aggregate Demand Z is defined as: Z=C+I+G+(X-M) and the equilibrium condition is Y=Z. The disposable income YD is defined as: (Y-T). Consumption is: C = Co + c₁YD. a. Set up the model for this economy. b. Calculate and graph the equilibrium level of Real GDP for this economy. c. What is the multiplier of this Economy? d. What is the level of consumption at equilibrium income? e. If the population of Primaland is 3,000,000 calculate the Real GDP/per capita. If the GDP deflator or the price level is 1.5; the liquidity preference is L(i)=(.25-i); and the Demand for Money equation is Md=$YL(i) f. Calculate the personal demand for money based on Nominal GDP/per Capita. g. If the average wealth of a person is $20,000 Calculate the average demand for bonds. h. If the interest rate rises to 10% will the demand for money rise or fall? Calculate the new level of the demand for money and demand for bonds People in Primaland hold 30% of the money they demand in cash and the rest in demand deposits, while banks are required by law to hold 10% reserves. If the interest rate is at 5% and the function of high powered money is Hd-[c+R(1-c)]SYL(i) i. What is the money multiplier j. First, calculate the total economy demand for money then calculate the quantity of high powered money the government needs to print. Suppose the basic consumption level of Primaland is $10,000 million and that the MPC is 50% of the disposable income. Government spending there is $ 5,000 million. Taxes are per head and a function of income with T=3000+0.1Y. Investment is a function of income and interest at I=4000+0.3Y-50,000r. Interest is 5% and Exports and Imports are both at $2000 million so trade is balanced. Aggregate Demand Z is defined as: Z=C+I+G+(X-M) and the equilibrium condition is Y=Z. The disposable income YD is defined as: (Y-T). Consumption is: C = Co + c₁YD. a. Set up the model for this economy. b. Calculate and graph the equilibrium level of Real GDP for this economy. c. What is the multiplier of this Economy? d. What is the level of consumption at equilibrium income? e. If the population of Primaland is 3,000,000 calculate the Real GDP/per capita. If the GDP deflator or the price level is 1.5; the liquidity preference is L(i)=(.25-i); and the Demand for Money equation is Md=$YL(i) f. Calculate the personal demand for money based on Nominal GDP/per Capita. g. If the average wealth of a person is $20,000 Calculate the average demand for bonds. h. If the interest rate rises to 10% will the demand for money rise or fall? Calculate the new level of the demand for money and demand for bonds People in Primaland hold 30% of the money they demand in cash and the rest in demand deposits, while banks are required by law to hold 10% reserves. If the interest rate is at 5% and the function of high powered money is Hd-[c+R(1-c)]SYL(i) i. What is the money multiplier j. First, calculate the total economy demand for money then calculate the quantity of high powered money the government needs to print.

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Answer a The aggregate demand AD function is AD C I G NX C 10000 050Yd C 10000 050Y T T 3000 01Y Y T ... View the full answer