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A Keynesian economy is described by the following equations :

C^d = 250 + 0.5(Y - T) - 250r

I^d = 250 - 250r

G = 300

T = 300

L = 0.5Y - 500r + π^e

M = 3000

Y = 1250

π^e = 0

a) Calculate the values of the real interest rate, the price level, consumption, and investment for the economy in general equilibrium.

(b) Now suppose government purchases increase to 350 with no change in taxes. What will be the real interest rate, the price level, output, consumption, and investment in the short run?

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Samantha Balando
Samantha BalandoLv7
28 Sep 2019

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Related questions

Assume production in an economy takes place according to Y = 200-L

and that labor is supplied according to L* = (W/P)^2 where W is the nominal wage and P is the price level meaning that W/P is the real wage.

There is no government in this economy and so G = T = 0. Consumption is given by: C = 600 + 0.5Y - 500r and investment by: I = 500 - 500r

Finally, money demand is even by Md P = Y - 2000r In this question we solve for equilibrium in period one. Assume that in this period the economy is in long-run equilibrium.

(a) Find the equilibrium real wage, level of employment, and output for this economy.

(b) Assume that the money supply is given by M = 1800 and find the equilibrium real interest rate, levels of consumption and investment, the equilibrium price level, and the nominal wage.

C = 1275 + 0.5(Y-T) – 200r

I = 900 – 200r

Real Money demand, L = 0.5Y – 200i

Expected inflation, ? = 0

Full employment output, = 4600

a.) Suppose that T = G = 450 and M = 9000

Find an equation describing the IS curve

Find an equation describing the LM curve

Find an equation for the aggregate demand curve (Hint: Use IS and LM equations to find a relationship between Y and P)

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

b) Suppose M = 4500, T and G remain the same.

What is the equation for the aggregate demand curve?

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

c.) Suppose T = G = 330 and M = 9000

What is the equation for the aggregate demand curve?

What are the general equilibrium values of output, consumption, investment, real interest rate, and price level?

In a closed economy the following holds:
?Household consumption C is given by the consumptionfunction:
C = 100 + 0.75Yd
?Planned investments are I = 250 (independent of Y ).
?Household disposable income: Yd = Y - T, where Y isproduction.
?Taxes depend on income according to: T = -200 + 0.5Y .
?Public consumption: G = 1000.
(a) Use the simple Keynesian model of the goods market to calculateequilibrium
production Y , i.e. the level of production compatible withplanned
expenditure in the form of consumption and investments.
(b) What is the public budget deficit?
(c) Suppose that the government increases public consumption to G =1100.
What is production in the new equilibrium?
(d) What is the public deficit after the increase of publicconsumption?
(e) What is the multiplier for an (unfinanced) increase in publicconsumption

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