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Handout 10

# Handout 10 - T = 20 0 2 Y Government purchases G = 152 Net...

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Econ 3140-2 Fall 2009 Handout #10 1. (Question Three from Abel et.al., Chapter 13, numerical problems) Consider the following classical economy: Desired consumption C d = 300 + 0 : 5 Y ° 200 r Desired investment I d = 200 ° 300 r Government purchases G = 100 Net exports NX = 150 ° 0 : 1 Y ° 0 : 5 e Real exchange rate e = 20 + 600 r Full-employment output Y = 900 (a) What are the equilibrium values of the real interest rate, real exchange rate, consumption, investment, and next exports? (b) Now suppose that full-employment output increases to 940 . What are the equilib- rium values of the real interest rate, real exchange rate, consumption, investment, and net exports? (c) Suppose that full-employment output remains at 940 and that government pur- chases increase to 132 . What are the equilibrium values of the real interest rate, real exchange rate, consumption, investment, and net exports? 2. (Question Four from Abel et.al., Chapter 13, numerical problems) Consider the following Keynesian classical economy: Desired consumption C d = 300 + 0 : 6 ( Y ° T ) ° 200 r Desired investment I d = 300 ° 300 r Taxes
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Unformatted text preview: T = 20 + 0 : 2 Y Government purchases G = 152 Net exports NX = 150 & : 08 Y & 500 r Money demand L = 0 : 5 Y & 200 r Money supply M = 924 Full-employment output Y = 1000 (a) What are the general equilibrium (that is, long run) values of output, the real interest rate, consumption, investment, net exports, and the price level? (b) Starting from full employment, government purchases are increased by 62 , to 214 . What are the e/ects of this change on output, the real interest rate, consumption, investment, net exports, and the price level in the short run? In the long run? (c) With government purchases at their initial value of 152 , net exports increase by 62 at any income and real interest rate so that NX = 212 & : 08 Y & 500 r . What are the e/ects of this change on output, the real interest rate, consumption, investment, net exports, and the price level in the short run? In the long run? Compare your answer to that of Part a . 1...
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