Find real interest rate and nominal interest rate, Macroecon, Macroeconomics

Assignment Help:
#questionAssume that an economy''s GDP Y=5000. Also assume that the government runs a deficit where tax revenue T=1000 and government expendituresG= 1500. The consumption function is represented by the following equation:

C = 1200+0.25(Y-T)

Investment depends on the interest rate which is represented by the following equation:

I(r) =1500-50r

Assume that nominal money grows at 3%, the demand for real money balances is represented by the following equation:

(m/p)D = 0.2Y-120i

Answer the following questions:

a) In the long run, what will be the equilibrium real interest rate in this economy?

b) Assume that expected inflation rate is the money growth rate. What is the nominal interest rate in this economy?

c) Find the price level in this economy, in the long run.

d) What is the marginal propensity to consume?

e) What proportion of income will individuals want to hold as money?

f) Find the new real interest rate, nominal interest rate, and price level, if the government balances the budget by increasing taxes...

Related Discussions:- Find real interest rate and nominal interest rate, Macroecon

Develop the mrp planning schedule, Product A is an end item and is made fro...

Product A is an end item and is made from two units of B and four of C. B is made of three units of D and two of E. C is made of two units of F and two of E. A has a lead time o

Describe short-run equilibrium price-demand, The aim of this task is to exp...

The aim of this task is to explore the effects of a supply shock on a firm and thereby on the industry. Suppose that war breaks out in the Middle East, where a considerable portion

Give brief introduction about interest rate, Give brief Introduction about ...

Give brief Introduction about Interest rate When you borrow money, you usually have to pay a fee for the loan. This fee is often called interest, particularly if the fee is pr

Last deposit if your saving account, You make a monthly deposit of $1,000 i...

You make a monthly deposit of $1,000 into a saving account for the next 10 years. How much can you withdraw immediately after your last deposit if your saving account pays 6% per y

Information technology department at wpu, A study by the Information Techno...

A study by the Information Technology department at WPU revealed company employees receive an average of four e-mails per hour. Assume the arrival of these e-mails is approximated

Allocate their scarce resources, What are the three methods that societies ...

What are the three methods that societies have used to allocate their scarce resources? Give an example of each method. Give an example of a good that uses all three methods at onc

Two quarters of increasing levels of production, After two quarters of incr...

After two quarters of increasing levels of production, the CEO of Canadian Fabrication & Design was upset to learn that, during this time of expansion, productivity of the newly hi

Equilibrium price of guitars, Suppose the demand for guitars in State Colle...

Suppose the demand for guitars in State College is given by Qd = 9000 - 12P where Qd is the quantity demanded, and P is the price of guitars. Also, suppose the supply of guitars is

Arc price elasticity of demand, The Stop decay company sells an electric to...

The Stop decay company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decay fighter, redu

What are the capitalist countries in the world, Capitalism is the dominant,...

Capitalism is the dominant, most used form of government there is in the globe today. Presently, over 80% of countries use capitalism and a free market economy.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd