For the economy described below:
C
= 2,500 + 0.9(Y -T) - 10,000r
I p
= 2,200 - 10,000r
G
= 2,200
NX
= 0
T
= 3,500
a. Suppose that potential output Y* equals 27,500. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 10.
Instruction: Enter your response as an integer value.
The real rate of interest: % =?
b. Suppose that potential output Y* equals 23,500. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 10.
Instruction: Enter your response as an integer value.
The real rate of interest: % =?
c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment.
Instruction: Enter your response as an integer value.
Planned investment I p =.
National saving S =.
For the economy described below:
| C |
= 2,500 + 0.9(Y -T) - 10,000r |
| I p |
= 2,200 - 10,000r |
| G |
= 2,200 |
| NX | = 0 |
| T |
= 3,500 |
a. Suppose that potential output Y* equals 27,500. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 10.
Instruction: Enter your response as an integer value.
The real rate of interest: % =?
b. Suppose that potential output Y* equals 23,500. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 10.
Instruction: Enter your response as an integer value.
The real rate of interest: % =?
c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment.
Instruction: Enter your response as an integer value.
Planned investment I p =.
National saving S =.
Related textbook solutions
Related questions
An economy with zero net exports is described below:
| C | = 100 + 0.6 (Y 'T) |
| I p | = 70 |
| G | = 120 |
| NX | = 0 |
| T | = 150 |
| The multiplier in this economy is 2.5. | |
A. Find short-run equilibrium output.
Instruction: Enter your response as an integer value.
Short-run equilibrium output: .
B. Economic recovery abroad increases the demand for the country's exports; as a result, NX rises to 80.
Instruction: Enter your response as an integer value.
Short-run equilibrium output (Click to select)decreases/ increases to ________ .
C. Assume that foreign economies are slowing, reducing the demand for the country's exports so that NX = -80. (A negative value of net exports means that exports are less than imports.)
Instruction: Enter your response as an integer value.
Short-run equilibrium output (Click to select)increases/decreases to ___________ .
D. Which of the following best describes the tendency of recessions and expansions to spread across countries?
1. Lower planned aggregate spending in one nation will reduce the amount of goods it exports abroad, thereby lowering the value of imports for its trading partners, which will reduce its short-term equilibrium output as well.
2. Lower planned aggregate spending abroad means that fewer goods will be exported from a specific nation, leaving more goods available for domestic consumption (C) in that nation, which will increase its short-term equilibrium output.
3. Lower planned aggregate spending abroad will reduce the amount of investment that flows into domestic industries from other countries, thereby reducing domestic short-term equilibrium output.
4. Lower planned aggregate spending in a nation means fewer imports of foreign goods, thereby reducing the short-term equilibrium output of its trading partners through lower net export (NX) values in those nations.
