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What are the general equilibrium values

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Consider the following Keynesian economy: Desired consumption cd = 200 + 0.6(Y - T) - 200r.

Desired investment Id = 300 - 300r.

Taxes T = 20 + 0.2Y.

Government purchases G = 152.

Net exports NX = 150 - 0.08Y - 500r.

Money demand L = 0.5Y - 200r.

Money supply M = 924.

Fullemployment output Y = 1000.

a. What are the general equilibrium (that is, long-run) values of output, the real interest rate, consumption, investment, net exports, and the price level?

b. Starting from full employment, government purchases are increased by 62, to 214. What are the effects of this change on output, the real interest rate, consumption, investment, net exports, and the price level in the short run? In the long run?

c. With government purchases at their initial value of 152, net exports increase by 62 at any income and real interest rate so that NX = 212 - 0.08Y - 500r. What are the effects of this change on output, the real interest rate, consumption, investment, net exports, and the price level in the short run? In the long run? Compare your answer to that for Part (b).

Reference no: EM132506977

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