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Unformatted text preview: point. b. Each 1 percentage point decline in interest rates stimulates $30 billion worth of new investment. c. The multiplier for investment is 2. d. The aggregate supply curve is so flat that prices do not rise noticeably when demand increases. 3. Consider an economy in which government purchases, taxes, and net exports are all zero, the consumption function is C = 300 + 0.75 Y and investment spending (I) depends on the rate of interest (r) in the following way: I = 1000 - 100r Find the equilibrium GDP if the Fed makes the rate of interest (a) 2 percent (r=0.02), (b) 5 percent, and (c) 10 percent....
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This note was uploaded on 01/12/2012 for the course ECON AS.180.101 taught by Professor Maccini during the Fall '08 term at Johns Hopkins.
- Fall '08