Answer to Question #214041 in Macroeconomics for Kay

Question

Q.1 Consider the following information about a hypothetical economy:

1. Y = A(0.025K-0.5N)N

2. A=2/3

3. K=2000

4. N^s=-18+(18/5)w

5. C=200+(2/3)(Y-T)-300r

6. T=-75+(1/4)Y

7. I =100−100r

8. G =100

9. L = 0.5Y − 200i

10. M = 6300

11. π^e= 0.10

Now using this information, answer the following:

(h) Compare the equilibrium positions in (d) and (g) in one graph indicating all points. 

(i) Starting from the initial equilibrium position again, suppose that the capital stock increases by 170. What 

will be the impact of this expansion on labour market equilibrium and aggregate supply of output? 

Calculate values of all endogenous variables and give intuitive explanation of the results. 

(j) Compare the equilibrium positions in (d) and (i) indicating all points. 

Answer 1

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