Consider the following Keynesian economy Desired consumption: c" -220 + 0.6(Y - T)-200r Desired investment: 300 - 300r Taxes: T=20 + 0.2Y Government purchases: G= 152 Net exports: NX 150 -0.08Y -500r Money demand: L0.5Y -200r Money supply: M=936 Full-employment output: Y 1000 In this economy, the real interest rate does not deviate from the foreign interest rate. a. In the general equilibrium (that is, the long run), the value of output is 1000 , the real interest rate is 0.210, consumption is 646, investment is 237, net exports are -35, and the price level is 2.044 (Enter values rountled to three decimal places for the real interest rate and price level, and enter values rounded to integers for all other values.) b. Starting from full employment, govermment purchases are increased by 58, to 210. As a result of this change, in the short run, output becomes 1019. the real interest rate becomes 0.257, the consumption becomes 640, investment becomes 223, and net exports become - 60 (Enter values rounded to three decimal places for the real interest rato, and enter values rounded to integers for all other values.) c. Using the same information as provided in part (b), in the long run, nominal money supply would be the price level would be and the real money supply would be (Enter a value rounded to three decimal places for the price level, and enter values rounded to integers for all other values.)
Consider the following Keynesian economy Desired consumption: c" -220 + 0.6(Y - T)-200r Desired investment: 300 - 300r Taxes: T=20 + 0.2Y Government purchases: G= 152 Net exports: NX 150 -0.08Y -500r Money demand: L0.5Y -200r Money supply: M=936 Full-employment output: Y 1000 In this economy, the real interest rate does not deviate from the foreign interest rate. a. In the general equilibrium (that is, the long run), the value of output is 1000 , the real interest rate is 0.210, consumption is 646, investment is 237, net exports are -35, and the price level is 2.044 (Enter values rountled to three decimal places for the real interest rate and price level, and enter values rounded to integers for all other values.) b. Starting from full employment, govermment purchases are increased by 58, to 210. As a result of this change, in the short run, output becomes 1019. the real interest rate becomes 0.257, the consumption becomes 640, investment becomes 223, and net exports become - 60 (Enter values rounded to three decimal places for the real interest rato, and enter values rounded to integers for all other values.) c. Using the same information as provided in part (b), in the long run, nominal money supply would be the price level would be and the real money supply would be (Enter a value rounded to three decimal places for the price level, and enter values rounded to integers for all other values.)
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section: Chapter Questions
Problem 5DQ
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Transcribed Image Text:Consider the following Keynesian economy
Desired consumption: c" -220 + 0.6(Y - T)-200r
Desired investment: 300 - 300r
Taxes: T=20 + 0.2Y
Government purchases: G= 152
Net exports: NX 150 -0.08Y -500r
Money demand: L0.5Y -200r
Money supply: M=936
Full-employment output: Y 1000
In this economy, the real interest rate does not deviate from the foreign interest rate.
a. In the general equilibrium (that is, the long run), the value of output is 1000 , the real interest rate is 0.210, consumption is 646, investment is 237, net exports
are -35, and the price level is 2.044
(Enter values rountled to three decimal places for the real interest rate and price level, and enter values rounded to integers for all other values.)
b. Starting from full employment, govermment purchases are increased by 58, to 210. As a result of this change, in the short run, output becomes 1019. the real
interest rate becomes 0.257, the consumption becomes 640, investment becomes 223, and net exports become - 60
(Enter values rounded to three decimal places for the real interest rato, and enter values rounded to integers for all other values.)
c. Using the same information as provided in part (b), in the long run, nominal money supply would be the price level would be and the real money supply
would be
(Enter a value rounded to three decimal places for the price level, and enter values rounded to integers for all other values.)
Expert Solution
Step 1
Given:
The consumption level is as:
Desired investment:
Taxes:
Government purchases: G = 152
Net Exports:
Money demand:
Money supply: M = 936
Full employment output:
To Find:
In the long run, the nominal money supply, the price level, and the real money supply:
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