Illustrate what are the equilibrium values of interest rate

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Reference no: EM1360416

An economy has full-employment output of 1,000. Planned consumption and investment are:

C = 200 + 0.8(Y - T) - 500r

I = 200 - 500r.

Government purchases are G = 196, and taxes are T = 20 + 0.25Y . Real balance demand is:

MP = 0.5Y - 250r - 25.

The nominal money supply is M = 9890.

1. What are the equilibrium values of the interest rate, price level, consumption and investment?

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

Reference no: EM1360416

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