4G8:20 AMAssignment 2.. oAssignment 2ЕCО 103 Н (Sос)Set 1: Equilibrium output1.government. Suppose the consumption function is given by C = 100 + .8Y, while investmentis given by I = 50.What is the equilibrium level of income in this case?b. What is the level of saving in equilibrium?c. If, for some reason, output is at the level of 800, what will the level of involuntary in-a.ventory accumulation be?d. If I rises to 100 (we discuss what determines I in later chapters), what will the effect beon the equilibrium income?e. What is the value of the multiplier, a, here?f. Draw a diagram indicating the equilibria in both (a) and (d).2.Suppose the consumption behavior in problem 1 changes so that C = 100 + .9Y, whileremains at 50.a. Is the equilibrium level of income higher or lower than it was in problem 1(a)? Calculatthe new equilibrium level, Y', to verify this.b. Now suppose investment increases to I = 100, just as in problem 1(d). What is the neequilibrium income?c. Does this change in investment spending have more or less of an effect on Y than it did iproblem 1? Why?d. Draw a diagram indicating the change in equilibrium income in this case.Set 2: Money1Illustrate the tools of money supply.2. Explain the functions of the central bank.3. Distinguish between demand pull and cost push inflation.4. Define with example: Structural unemployment, Frictional unemployment, cyclicalunemployment.

Formula to calculate income level= AS= AD The formula becone Y= C +I

Answered: Set 1: Equilibrium output 1.…

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Set 1: Equilibrium output 1. government. Suppose the consumption function is given by C = 100 + .8Y, while investmen

MACROECONOMICS

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ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

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Question

4G
8:20 AM
Assignment 2.. o
Assignment 2
ЕCО 103 Н (Sос)
Set 1: Equilibrium output
1.
government. Suppose the consumption function is given by C = 100 + .8Y, while investment
is given by I = 50.
What is the equilibrium level of income in this case?
b. What is the level of saving in equilibrium?
c. If, for some reason, output is at the level of 800, what will the level of involuntary in-
a.
ventory accumulation be?
d. If I rises to 100 (we discuss what determines I in later chapters), what will the effect be
on the equilibrium income?
e. What is the value of the multiplier, a, here?
f. Draw a diagram indicating the equilibria in both (a) and (d).
2.
Suppose the consumption behavior in problem 1 changes so that C = 100 + .9Y, while
remains at 50.
a. Is the equilibrium level of income higher or lower than it was in problem 1(a)? Calculat
the new equilibrium level, Y', to verify this.
b. Now suppose investment increases to I = 100, just as in problem 1(d). What is the ne
equilibrium income?
c. Does this change in investment spending have more or less of an effect on Y than it did i
problem 1? Why?
d. Draw a diagram indicating the change in equilibrium income in this case.
Set 2: Money
1
Illustrate the tools of money supply.
2. Explain the functions of the central bank.
3. Distinguish between demand pull and cost push inflation.
4. Define with example: Structural unemployment, Frictional unemployment, cyclical
unemployment.

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