10H4 - Econ 102 Homework 4 Due Monday(No late answer 1 Show...

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Econ. 102. Homework 4. Due: Monday. March 15, 2010 (No late answer) *******. 1. Show your 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. ******. In the classical model with closed economy assumption, the demand for goods and services can be described by (1) AD = C + I + G where C (consumption) and I (investment) are behavioral equations. (A behavior equation specifies the manner in which a variable behaves in response to changes in other variables). C can be specified as: (2) C = C(Y d ) = a + b(Y-T) where Y d = disposable income, Y = RGDP, T = tax – transfer payments, a = autonomous consumption. (It is the amount of consumption expenditure that would take place even if people had no current income.) b = marginal propensity to consume (MPC) = ∆C/∆(Y- T), a > 0 and 1 > b > 0. I can be specified as: (3) I = c – dr where c = autonomous investment, r = real interest rate, d = interest response to investment, and d > 0. (∆I/∆r) = - d < 0. ******. 1 . (NGW, p. 77) Consider an economy described by the following equations. _ _ _ (1) Y = Y = F(K,L) = 5,000. (2) Y = C + I + G (3) C = a + b(Y-T) = 250 + 0.75(Y-T). (4) I = c – dr = 1,000 – 50r. _ _ (5)

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This note was uploaded on 09/08/2010 for the course ECON 102 at San Jose State.

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10H4 - Econ 102 Homework 4 Due Monday(No late answer 1 Show...

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