Question I An economy is characterized as follows: T--200.2Y C- 150 +.75Yd 300 +

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Question I An economy is characterized as follows: T--200.2Y C- 150 +.75Yd 300 +.6)Y 1-300 +.1Y-3000 i G-300 Goods market equilibrium (IS) is given by Y- (1/3)(900-3000 i) 3000 10000 i Money market equilibrium (LM) is given by i policy interest rate. i.1 where i is the Central Bank's nominal What are the values of output, disposable income, consumption, investment spending. and national saving, at general equilibrium for this economy? Show your calculations (3 points each) a) iv. I- S-Sprivate + Spublic =

Explanation / Answer

ans

i.) Y = 3000 - 10000 i = 3000 - 10000 (0.1) = 2000

ii.) Yd = Y- T +TR here TR = 0

= 2000 - (-200+ .2 Y)

= 2000+200 -0.2 (2000) = 1800

iii.) C= 300 + 0.6 Y = 300 +0.6(2000) = 1500

iv.) I = 300 +0.1 Y- 3000 i = 300+0.1(2000) -3000(0.1) =200

v.) in a closed economy Savings = Investment , hence, savings= 200

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