Question

Consider the UNILUS economy in the long-run described by the following equations:

Y = C + I + G, Y = 5,000, G = 1,000, T = 1,000, C = 250 + 0.75(Y − T), I = 1,000 − 50r. C=100+b(Y-50-0.25Y);

Answer 1

$Y = C +I + G$

$C = 250 + 0.75(5000-1000)$

$C = 3000$

$= 3000+ (1000-50r) + 1000$

$5000 = 4000-50r$

$5000-4000 = 50r$

$1000 = 50r$

$r = \frac{1000}{50} = 20$

$I = 1000-50r$

$= 1000-50(20) = 0$

$C = 100+b(Y0.5 -0.25Y)$

$3000 = 100+ b((0.5 × 5000) - (0.25×5000))$$3000 = 100 + b(2500-1250)$

$3000= 100 + b(1250)$

$3000-100 = 1250b$

$2900= 1250b$

$b= \frac{2900}{1250}$

$b= 2.32$