Suppose the initial conditions of the economy are characterized by the following equations in a standard font. We then shock the economy as shown in the italics font.
1) C = a0 + a1 (Y-T) + a2 (WSM) + a3 (WRE) + a4 (CC) +a5 (r)
1') C = a0 + a1 (Y-200) + a2 (10,000) + a3 (15,000) + a4 (120) +a5 (4)
1'') C = a0 + a1 (Y-200) + a2 (12,000) + a3 (15,000) + a4 (160) +a5 (4)
2) I = b0 + b1AS + b2CF + b3 (r)
2') I = b0 + b1(140) + b2(1,500) + b3 (4)
2'') I = b0 + b1(140) + b2(1,500) + b3 (4)
3) G = G
3') G = 200
4) X-M = X-M
4') X-M = -200
4'') X-M = -400
5) AE = C + I + G + X-M
Where: a0 = 50 a1 = .60 a2 = .05 a3 = .10 a4 = .5 a5 = -400 b0 = 100 b1 = .5 b2 = .2 b3 = -50
Use the initial Conditions above to get expressions for the Consumption Function, Investment and the AE equation.
A) Complete the consumption function: C = ________+________Y
B) What is the value of Investment: I = _________
C) Fill in the intercept and slope values to correctly complete the AE equation:
AE = ________+________Y
D) The value of equilibrium output (Y) = _________
E) The value of equilibrium consumption (C) = ________
We now incur shocks ot the economy as provided in the italics font. Use these new conditions to get expressions for the Consumption Function, Investment and the AE equation.
F) Complete the new consumption function C = _______+______Y
G) What is trhe new value of Invesment: I = ________
H) Fill in th eintercept and slope values to correctly complete the new AE equation:
AE = _______+________Y
I) The new value of equilibrium output (Y) = ______
J) The new value of equilibrium consumption (C) = _______
