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Unformatted text preview: C=160 + 0.6(Y100) 150 1000 Z=400 + 0.6Y Z=Y 45 o University of Toronto Macroeconomics, Theory and policy Masoud Anjomshoa Economics Department Solution set #3 Disclaimer: These solutions are just guidelines for you, and may NOT include a complete solution for the questions and problems in your homework, as you must present in your assignments and/or exams. In your solutions you must show your work, and demonstrate your line of thinking clearly. Please, always check my calculations for unintentional typos or miscalculations. Chapter 3. Q1. a. True b. False. Transfers are not included in G. c. False. It is between zero and one. d. True e. False. Demand = Supply=Output, where demand includes private consumption, government spending, investment, and net export. f. False. Equilibrium output increases by the multiplier factor, 1/(1c1). Chapter 3. Q2 a) Z= C+ G + I Z =160 +0.6*(Y100) +150 +150 Z=400 + 0.6 Y Equilibrium Condition: Z = Y Line Z = Y has a slope of 45 degree. Z=400 + 0.6 Y Z= Y Y = 400 + 0.6 Y Y=1000 (point Y* in the graph) (Equilibrium Output/Income/Demand/Expenditure) b) Equilibrium Disposable Income: Yd = Y – T Yd = 1000 – 100 = 900 c) Equilibrium Consumption: C= 160 + 0.6 Yd = 160 + 0.6 * 900 C = 700...
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 Spring '10
 MasoudAnjamshoa
 Macroeconomics, Government, Public Finance, Z= C+, equilibrium output/demand point

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