Given the following model: Y = C + I + G + (X-M) Question 1 Suppose that: Autono

Question

Given the following model:

Y = C + I + G + (X-M)

Question 1

Suppose that:

Autonomous Consumption = $500

MPC = 0.75

Taxes = $400

Investment = $500

Government Spending = $1200

Exports = $300

Imports = $500

Find the following: (2 points each)

A. Equilibrium income

B. Equilibrium consumption

C. Equilibrium saving

D. Write the savings function

E. Show that injections equal withdrawals

Question 2

Suppose that full employment GNP (FE Y) is = 4000 (2 points each)

A. Explicitly find the necessary change in G to get the economy to full employment GDP.

B. Explicitly find the necessary change in Taxes to get the economy to full employment

GDP.

Question 3

Given the position of the economy in question one and that full employment GDP = 4000

explain how the following monetary policies would get the economy to full employment GDP

(1.5 point each)

A. Open market operations

B. Discount rate

C. Federal funds rate

D. Required reserve ratio

Explanation / Answer

Y == C + I + G + (X-M hence equilibrium income =500+500+1200+300-500 =2000 ... eqilibrium consumption =0.75*2000 =1500 . multiplier =1/1-c =4 hence eqilibrium investment =2000/4 =500

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