Suppose the economy is characterized by the following. C = 1,000+ 9(Y-T) - 15i + .03W...

 

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Suppose the economy is characterized by the following. C = 1,000+ 9(Y-T) - 15i + .03W (a) I = 300 -25i G=300 X = 300 -.1Y i = 6% T= 340 (exogenous) W = 100,000 Note: the interest rate enters as a whole number, e.g. i = 6% enters as “6”. Calculate the spending equilibrium result for all variables, confirm the spending equilibrium, and solve for and show the capital market equilibrium. (12 points). (b) Starting with your answer to (a), suppose that government increases spending to 400. Calculate the new spending equilibrium for all variables, confirm the spending equilibrium, and solve for and show the capital market equilibrium. (12 points). (c) Explain conceptually why an increase in government spending has a multiplied impact on GDP, and why this process eventually ends. (10 points). Suppose the economy is characterized by the following. C = 1,000+ 9(Y-T) - 15i + .03W (a) I = 300 -25i G=300 X = 300 -.1Y i = 6% T= 340 (exogenous) W = 100,000 Note: the interest rate enters as a whole number, e.g. i = 6% enters as “6”. Calculate the spending equilibrium result for all variables, confirm the spending equilibrium, and solve for and show the capital market equilibrium. (12 points). (b) Starting with your answer to (a), suppose that government increases spending to 400. Calculate the new spending equilibrium for all variables, confirm the spending equilibrium, and solve for and show the capital market equilibrium. (12 points). (c) Explain conceptually why an increase in government spending has a multiplied impact on GDP, and why this process eventually ends. (10 points).

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a Calculating spending equilibrium and capital market equilibrium In spending equilibrium total spending Y equals total output GDP To find the equilibrium values for all variables we set Y C I X G 1 C... View the full answer