# Homework_4 - Points Awarded 94.00 Points Missed 6.00...

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Points Awarded 94.00 Points Missed 6.00 Percentage 94.0 % 1. Part 1: AE Problem (11 questions worth 3 points each for a total of 33 points). Suppose the initial conditions of the economy are characterized by the following equations in black font. We then shock the economy as shown in the red font . 1) C = a 0 + a 1 (Y-T) + a 2 (WSM) + a 3 (WRE) + a 4 (CC) + a 5 (r) 1’) C = a 0 + a 1 (Y-200) + a 2 (10,000) + a 3 (15,000) + a 4 (120) + a 5 (4) 1’') C = a 0 + a 1 (Y-200) + a 2 (12,000) + a 3 (15,000) + a 4 (160) + a 5 (4) 2) I = b 0 + b 1 AS + b 2 CF + b 3 (r) 2’) I = b 0 + b 1 (140) + b 2 (1500) + b 3 (4) 2’) I = b 0 + b 1 (180) + b 2 (2000) + b 3 (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: a 0 = 50, a 1 = .60, a 2 = .05, a 3 = .10, a 4 = .5, a 5 = -400, b 0 = 100, b 1 = .5, b 2 = .2, b 3 = -50 Use the initial conditions above to get expressions for the Consumption function, Investment and the AE equation. Fill in the intercept and slope values to correctly complete the consumption function: C = + Y Points Earned: 3.0/3.0 Correct Answer(s): Box 1: 390; Box 2: .6, 0.6, 0.60, . 60 390 .60

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2. What is the value of Investment: I = Points Earned: 3.0/3. 0 Correct Answer(s): 270 3. Fill in the intercept and slope values to correctly complete the AE equation: AE = + Y Points Earned: 3.0/3.0 Correct Answer(s): Box 1: 660; Box 2: .6, .60, 0.6, 0.60 4. The value of equilibrium output (Y) = Points Earned: 3.0/3. 0 Correct Answer(s): 1650 5. The value of equilibrium consumption (C) = Points Earned: 3.0/3. 0 Correct Answer(s): 1380 6. 270 660 .60 1650 1380
We now incur shocks to the economy as provided in the red font . Use these new conditions to get expressions for the Consumption function, Investment and the AE equation. Fill in the intercept and slope values to correctly complete the new consumption function: C = + Y Points Earned: 3.0/3.0 Correct Answer(s): Box 1: 510; Box 2: .6, .60, 0.6, 0.60 7. What is the new value of Investment: I = Points Earned: 3.0/3. 0 Correct Answer(s): 390 8. Fill in the intercept and slope values to correctly complete the new AE equation: AE = + Y Points Earned: 3.0/3.0 Correct Answer(s): Box 1: 700; Box 2: .6, .60, 0.6, 0.60 9. The new value of equilibrium output (Y) = Points Earned: 3.0/3. 0 Correct 1750 510 .60 390 700 .60 1750

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Answer(s): 10. The new value of equilibrium consumption (C) = Feedback: NOTE: There is no graphing component to be collected for this homework. However, you should be comfortable creating two separate graphs from the above questions in part 1. You should be able to: 1. Graph the consumption function both before and after the shock on one graph, and also plot equilibrium consumption and output values both before and after the shock. 2. Graph the AE equation both before and after the shock on one graph, and also plot equilibrium output Y both before and after the shock. Points Earned: 3.0/3. 0 Correct Answer(s): 1560 11. NOTE: There is no graphing component to be collected for this homework. However, you should be comfortable creating two separate graphs from the above questions. You should be able to: 1560
1. Graph the consumption function both before and after the shock on one graph, and also plot equilibrium consumption and output values both before and after the shock.

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