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- The consumption function of the economy of Macro-land is given by ? = 200 + 0.75(? − ?)The investment function is given by ? = 200 − 25? . Government purchases and taxes are both 100. (a) Find the equation of the IS curve (b) The money demand function in Macro-land is given byMd= ? − 100? The nominal money supply M is 1,000 and the price level is 2. Find the equation of theLM curve (c) Find the interest rate and income for which the goods and services and money marketsare simultaneously in equilibrium. (d) Suppose the government purchases are raised from 100 to 150. What are the newequilibrium interest rate and income? (e) Suppose that the money supply is raised from 1,000 to 1,200. What are the newequilibrium interest rate and national income? (f) How will fiscal expansion in the country (Macro-land) affect national income,employment, interest rate, price level and real money balance under the Keynesianaggregate supply condition? NB: Kindly answer all questions(i) Examine the influence of government expenditure on investment in a nation. Use Jot Inc. Ltd a multinational construction company in which you are the Chief Exec of the firm that that is highly diversified and recieves funds to construct highways and other government funded projects. Also, explain the factors that cause the Aggregate Demand curve to be downward sloping left to right.1. Consider the following classical macroeconomic model. Y = C(Y –T) + I(r -x)+G 0 0,1, 0 (4) N = N° - NS Y = F(N,K) F, > 0 (5) Y, C, T, ! , G, r, 1 M, P N, are respectively output, consumption, taxes, investment, government consumption, the nominal interest rate, the expected inflation rate, the money supply the price level, Y,P,N,r,W and labor. The endogenous variables are 1 is predetermined, and the policy variables G, and M, and the capital stock, K are exogenous. а) Interpret the equations. b) What are the effects of an adverse supply shock, described by a fall in the capital stock on the price level, the real wage, employment, and output. c) Why do fiscal policy and monetary policy not affect output or employment? d) What are the effects of a fiscal and a monetary expansion on the price level and interest rate?
- 1. Consider the following simple Keynesian model, (i) Rewrite the model into matrix form with Y, C and I as endogenous variables and Go and i as exogenous variables. (The coefficient matrix must be a 3 by 3 matrix.) Y=C+I+Go C = 200+ 0.8Y I= 1000-2000 (ii) Compute the equilibria Y*, C* and I* as functions of Go and i using Cramer's rule. 8Y* (iii) Find and di ƏY* ƏGo (iv) Give an economic interpretation of national income? ƏY* " ƏGo what should the government do if it wants to raiseSuppose that we have an economy whose production can be represented by a Cobb Douglas production function with parameter α=0.3. You may assume that there is no depreciation (i.e. δ=0). a. What fractions of income do capital and labor receive? b. For the following parts, describe what happens to output (in percent), the rental price of capital and the real wage from: i) Suppose that immigration increases the labor force by 10 percent. ii) Suppose that a gift of capital from abroad raises the capital stock by 10 percent. iii) Suppose that a technological advancement raises the value of the parameter A by 10 percent. Type out the correct answer ASAP with proper explanationIn an economy the interest rate is 5% and the depreciation rate is 20%. The price of capital is 1. A firm has the following production function Y=AKO5N0.5 a. Find the marginal cost of capital b. Compute the investment desired by the firm, knowing that A=2, K=8, N=1. c. If the economy is a close economy, what is the amount of national savings? Instead, what if this was an open economy? Explain. d. If the government imposes a tax on firm revenues of 25%, how does the investment desired change? Compute it and show what happens in the Investment-Savings diagram, assuming this is an open economy and the government completely waste the revenues of this tax.
- 4.a) Capital accumulation follows the equation dk/dt = I₁ - 8Kt, where 8 is the depreciation rate. If the Initial capital (which is also equal to initial investment) is Ko, define the time path of capital stock. What is the steady state level of capital stock if initial capital is 300 and depreciation is 5 percent? Also, show a phase diagram of the dynamic movement of capital stock. b). Given the demand-supply equation of the following Cobweb model, find the intertemporal price and quantity. Is the market table? Explain through a solution of a difference equation and graphs. Qdt 14-2Pt, Qst = -2+3Pt-1The Bureau of economic analysis announced today that gross domestic product, the widest measure economic activity, grew in a meager 0.9% annualized rate in the third quarter compared to the first six months of 2018 the US economy in the first 3 quarters of 2019 grew just 1.6%, a pronounced slow down relative to the 3.9% growth in the second half of 2018. Some of this slowdown can be explained by a negative contribution from inventory investment, which contracted 0.9% in the third quarter. There’s plenty to worry about in this report, as it showed us Retail sales Fell for the first time in seven months in September, although overall consumer spending which comprises about 66% of the US GDP activity was up 0 .4%. Capacity utilization also decreased 0.4% in the third quarter to 74.5%.1. Write a phrase from the article that speaks to change in household consumption in the third quarter in 2019. 2. From the information in this article, did household consumption increase or decrease in the…Question 6: Discuss the following statements: a. 'Stabilisation policy can be used to help the economy converge faster to its natural level of output after a positive or a negative shock.' b. There are no policy options to deal with a recession in a liquidity trap.' C. Consider the following economy. The production function is F(K, L) = K0.4 10.6. The saving rate and the depreciation rate are respectively: s= 0.20 and 8 = 0.1. Population growth is 2%, i.e. n = 0.02. Derive the capital accumulation equation for this economy. d. Find the steady state value of the capital stock per capita. e. Are the capital stock and output growing in the long-run? If so, at which rate? f. Suppose that the production function is instead: F(K) = K. Find out if there is economic growth in the economy.
- QUESTIONS 3 1. Explain the implication of the Ramsey model in terms of Pareto Efficiency Dynamic Efficiency 2. Assume that the economy is in a steady state and there is an unexpected permanent increase in the rate of depreciation δ. Using the appropriate diagram show: What is the best response to this change? Does consumption initially increase or decrease?4. In an infinite period model, let y denote output and let ẞ = (1+r)¹. Let LATRI denote lifetime after-tax real income, where LATRI is defined as (for simplicity, all current and future taxes are 0); LATRI = y +By++1 + ß²y++2 + ... Solve the right-hand side of LATRI by eliminating the future output variables in the following way: use the following equations for future output, where it is assumed that output grows by g percent each period (year); for example, g = 0.03, so that output grows by 3% per year: = Y+1(1+g) y₁, = Yt+2 (1+g) Yt+1, and so on. Use these equations, along with the rule for an infinite-period sum, to show that the equation for LATRI can be solved such that LATRI depends on current-period output y₁, as well as on r and g. Show your work. After deriving the equation for LATRI, do the following calculation. Assume that r equals 0.04, g equals 0.03, and y, is $40,000, and use the equation to calculate the dollar amount for LATRI (note that $40,000 x 1.04 equals…Consider an economy with production function Y = K1/2, an investment rate equal to 0.25, and a depreciation rate of 0.05. If K = 1,000 this period, the capital stock next period will be:Consider an economy with production function Y = K1/2, an investment rate equal to 0.25, and a depreciation rate of 0.05. If K = 1,000 this period, the capital stock next period will be: