Consider the economy described in Applied Problem 23.
a. Derive expressions for the MP curve and AD curve.
b. Assume that π = 2. What is the real interest rate and equilibrium level of output?
c. Suppose government spending increases to $4 trillion. What happens to equilibrium output?
d. If the Bank of Canada wanted to keep output constant, then what monetary policy change should occur?
Data from applied problem 23
C̅ = 3.25 trillion
I̅ = 1.3 trillion
G̅ = 3.5 trillion
T̅ = 3.0 trillion
N̅X̅ = -1.0 trillion
f̅ = 1
mpc = 0.75
d = 0.3
x = 0.1
l = 1
r̅ = 1
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