Chris Saul
New member
2.Given a closed economy, apply Keynesian Cross analysis to the following:
C = 200 + 2/3(Y-T)
I = 300
G = 300
T = 300
a.If Y = 1500, what is planned expenditure (PE)? At this level of PE, is there unplanned inventory accumulation or depletion? How much?
b.What is equilibrium Y? (Hint: Y = PE in equilibrium)
c.What is the government spending multiplier? How much does equilibrium income decrease if G is reduced to 200?
3.Using the Theory of Liquidity Preference, graphically illustrate the money market given an open-market purchase of bonds by the Federal Reserve. What happens to the equilibrium interest rate? Why? How does the open-market purchase of bonds affect the LM curve?
C = 200 + 2/3(Y-T)
I = 300
G = 300
T = 300
a.If Y = 1500, what is planned expenditure (PE)? At this level of PE, is there unplanned inventory accumulation or depletion? How much?
b.What is equilibrium Y? (Hint: Y = PE in equilibrium)
c.What is the government spending multiplier? How much does equilibrium income decrease if G is reduced to 200?
3.Using the Theory of Liquidity Preference, graphically illustrate the money market given an open-market purchase of bonds by the Federal Reserve. What happens to the equilibrium interest rate? Why? How does the open-market purchase of bonds affect the LM curve?