Essay
-A classical economy is described by the following equations:
Government spending and taxes are equal where T = G = 200.The nominal money supply M = 3560.
(a)What are the equilibrium values of the real interest rate,the price level,consumption,and investment?
(b)Suppose an economic shock increases desired investment by 10,so it is now Id = 360 - 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment?
(c)Returning to the initial situation in part (a),suppose an economic shock increases desired consumption by 10,so it is now Cd = 510 + 0.5 (Y - T)- 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment?
Correct Answer:
Verified
(a) 
. Set : , so . With . The...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Correct Answer:
Verified
. Set : , so . With . The...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q25: The idea that expected future increases in
Q33: A jobless recovery occurs when<br>A)no jobs are
Q36: Assuming money neutrality in the classical model,a
Q52: The distinction between real and nominal shocks
Q59: Which of the following statements is true
Q64: Suppose the money demand of individuals and
Q71: How do RBC economists face the business
Q81: A temporary adverse productivity shock would<br>A)shift the
Q95: According to the misperceptions theory,after an unanticipated
Q96: Why do many economists believe that money