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ernment purchases, G, are 1200. Desired consumption
and desired investment are
Cd == 3600 - 2000r + 0.10Y, and
I
d == 1200 - 4000r,
where Y is output and r is the real interest rate.
a. Find an equation relating desired national saving,
sd
, to r and Y.
b. Using both versions of the goods market equilibrium
condition, Eqs. ( 4.7) and ( 4.8), find the real interest
rate that clears the goods market. Assume that
output equals full-employment output.
c. Government purchases rise to 1440. How does
this increase change the equation describing
desired national saving? Show the change graph-
ically. What happens to the market-clearing real
interest rate?
government purchases are 2000. Desired consumption
and desired investment are as follows:
Real Interest
Rate (0/o)
2
3
4
5
6
Desired
Consumption
6100
6000
5900
5800
5700
Desired
Investment
1500
1400
1300
1200
1100
a. Why do desired consumption and desired invest-
ment fall as the real interest rate rises?
b. Find desired national saving for each value of the
real interest rate.
c. If the goods market is in equilibrium, what are the
values of the real interest rate, desired national
saving, and desired investment? Show that both
forms of the goods market equilibrium condition,
Eqs. (4.7) and (4.8), are satisfied at the equilibrium.
Assume that output is fixed at its full-employment
level.
d. Repeat Part (c) for the case in which government
purchases fall to 1600. Assume that the amount people desire to consume at each real interest rate
is unchanged
trying to determine how many chain-link fabricating
machines to buy for its factory. If we define a chain-
link fence of some specified length to be equal to one
unit of output, the price of a new fabricating machine
is 60 units of output, and the price of a one-year-old
machine is 51 units of output. These relative prices are
expected to be the same in the future. The expected
future marginal product of fabricating machines, mea-
sured in units of output, is 165 - 2K, where K is the
number of machines in use. There are no taxes of any
sort. The real interest rate is 10
Using an AD-AS framework and an expectations-augmented Phillips curve,
shows the effects of an unexpected increase in money supply.(9 marks)
In the first quarter of 2020, the economy of South Africa entered a recession. Which of the following best described what you would advice policymakers to do in order to move the economy out of a recession without causing an increase in inflation?
The price of coffee rose sharply last month, while the quantity sold remained the same. Five
people suggest various explanations:
Leonard: Demand increased, but supply was perfectly inelastic.
Sheldon: Demand increased, but it was perfectly inelastic.
Penny: Demand increased, but supply decreased at the same time.
Howard: Supply decreased, but demand was unit elastic.
Raj: Supply decreased, but demand was perfectly inelastic.
Who could possibly be right? Use graphs to explain your answer.
'Policymakers who can influence AD cannot offset the adverse effects of a recession due to a fall in AS'. Do you agree with statement? Explain your answer in words and using an AD-AS diagram. Explain
Consider
the
following
information
for
a
particular
economy.
Total
population
=
60
million
Number
of
employed
=
30
million
Total
labor
force
=
40
million
Natural
rate
of
unemployment
=
12%
a)
Find
the
total
unemployment
rate
b)
Calculate
the
cyclical
unemployment
rate
#340153 on Dec 2023