10H10 - Econ. 102. Homework 10. Due: Monday, May 17, 2010....

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Econ. 102. Homework 10. Due: Monday, May 17, 2010. *******. 1. Show your derivation and calculation explicitly. 2. Use the ruler to draw graphs. (Also show the scale explicitly). 3. E-mail submission of your answer will not be accepted. 4. Do not copy someone else’s answer. ******. It is well-known that only two of twelve postwar recessions were caused by a negative supply shock (1973 Arab-Israeli war and 1979 Iranian revolution). Most of recessions are mainly caused by demand shocks . Keynesian Cross models will help us understand how demand side of an economy works. *****. 1. Consider the following model of the economy (in billions of $) (1) Y = C + I + G (2) C = a + b(Y- T) = 200 + 0.75(Y – T), 1 > b > 0. (3) I = 100 (4) G = 100 (5) T = 100 where a, b, I, G, T are exogenous variables and Y is the only endogenous variable. a. Under what assumptions we can use these equations to describe an economy? [2] Equilibrium Analysis b. Derive the planned expenditure equation, E = C + I + G. [3]
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10H10 - Econ. 102. Homework 10. Due: Monday, May 17, 2010....

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