ps5 - 1. Equilibrium condition: Y=C+I+G+NX=$300 + 0.75DI +...

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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?
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Economics 205: Principles of Macroeconomics Mark Moore Fall 2007 Problem Set 5: Solutions
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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)....
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This note was uploaded on 03/02/2008 for the course ECON 205 taught by Professor Kamrany during the Fall '07 term at USC.

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ps5 - 1. Equilibrium condition: Y=C+I+G+NX=$300 + 0.75DI +...

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