# ps5 - Economics 205 Principles of Macroeconomics Mark Moore...

• Notes
• 2

This preview shows pages 1–2. Sign up to view the full content.

Economics 205: Principles of Macroeconomics Mark Moore Fall 2007 Problem Set 5 1. Baumol and Blinder, Ch. 9, (p. 192 in 2007 Update, p. 182 in the earlier edition), Test Yourself, problem 4. 2. Baumol and Blinder, Ch. 9, (p. 192 in 2007 Update, p. 182 in the earlier edition), Test Yourself, problem 5. 3. Suppose X-IM =0. If the economy has a recessionary gap, how do national saving and investment compare? How do they compare if the economy has an inflationary gap?

This preview has intentionally blurred sections. Sign up to view the full version.

Economics 205: Principles of Macroeconomics Mark Moore Fall 2007 Problem Set 5: Solutions
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1. Equilibrium condition: Y=C+I+G+NX=\$300 + 0.75DI + \$900 + \$1300 -\$100 =\$300 + 0.75*(Y-\$1200) + \$900 + \$1300 - \$100 Y*(1-.75)=\$2400-0.75*\$1200=\$1500 Y = [1/.25]*\$1500 = 4* \$1500 = \$6000 2. Investment increases by \$200. The multiplier is 1/(1-.075)=4. Therefore, Y increases by 4*\$200 = \$800. So, Y is now \$6800. 3. If NX=0, S=I, where S = national saving and I=investment. This is true whether there is an inflationary gap, a recessionary gap, or no gap at all (i.e., if the economy is at full employment)....
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern