Illustrate ahat are the general equilibrium values

Reference no: EM1347837

An economy has full-employment output of 1000. Desired consumption and desired investment are
C^d=200+0.8(Y-T)-500r;
I^d=200-500r.
Government purchases are 196, and taxes are
T=20+0.25Y.
Money demand is
M^d/P=0.5Y-250(r+π^e ),

Where the expected rate of inflation, π^e, is 0.10. The nominal supply of money M=9890.

Illustrate ahat are the general equilibrium values of the real interest rate, price level, consumption, and investment?

Suppose that government purchases are increased to G=216. What are the new general equilibrium values of the real interest rate, the price level, consumption, and investment?

Reference no: EM1347837

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