Unformatted text preview: Practice Quiz 3 1. Given two equation dynamic model:
(1) Yr =Ct+It (2)61 =G+bYt—1
with values a = 1000 b = 1/2 and I0 = 1000:
a) Suppose the economy is in equilibrium initially. What is the equilib
rium Y0? ________
b) Suppose I increases from 1000 to 1250 in period 1( and remains at
1250 for all subsequent periods).
Find Y1 1 1111111 and Y2 1111111.
c) What is the ﬁnal equilibrium Yea? _______
2. Consider two equation model.
variables: C consumption, Y real GNP, I Investment, G government
expenditures, T Taxes (Revenues), and a, b known coeﬂicients
equations: (1) Y = C+ I + G and (2) C = a + b(Y — T)
Given values: a = 1400 b = 9/10 I = 1400, G = 1000 and T = 1000
a) What is the equilibrium Y? 1________
b) If I decreases from 1400 to 1300, how much would the government
have to raise G to maintain the same equilibrium Y? AG 11.1111
(3) If (1 decreases from 1400 to 1300, how much would the government
have to lower T to maintain the same equilibrium Y? AT ________. WORK SPACE ...
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 Spring '08
 HIETMANN

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