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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