Hw3 - Student Name Sonoma State University Department of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Student Name:_____________________________________________________ Sonoma State University ECONOMICS 304 Department of Economics Florence Bouvet Assignment 3-optional Due Date: September 22 nd at the beginning of lecture 1) To address the current budget deficit, Congress is debating whether to implement a cut in government spending. Suppose you are a policy analyst working for the Congressional Budget Office, and it is your job to analyze the macroeconomic effects of a permanent cut. Suppose you have worked out the following very simplified model to characterize basic features of the U.S. economy: Y = 2,000 G = 400 T = 200 I = 800 – 10,000r Investment function C = 500 + 0.5(Y-T) Consumption function a) First find the equilibrium levels of the interest rate, investment and consumption for the economy described for the equations above. (Use Y = C + I + G, where we assume a closed economy.) Show your work!
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
b) Discuss the effects on the economy of lowering the level of G by 20%. You should compute the new equilibrium values of the interest rate, consumption and
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/08/2011 for the course ECON 304 taught by Professor Eyler during the Spring '07 term at Sonoma.

Page1 / 4

Hw3 - Student Name Sonoma State University Department of...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online