(1)The following macroeconomic model describes the economy of Sunderland. 1. Y= C + +G+NX 2. C = 220 + 0.63 Y 3. 1 = 1000- 2000R 4. G = Go 5. NX = 525 -0.10Y-500R 6. M (0.1583Y- 1000R)P (a)ls it a fair characterization to refer to equation #2 as a "simple" consumption function? Explain. (b)Derive the expression for equilibrium real output, Y, for this economy. Note: In your final expression for Y, restrict coefficient values to three decimal points. (c) Suppose government spending is 1200 , money supply by the Central Bank is 900 and the price level is 1, find the value of GDP (Y) and equilibrium interest rate (R) for Sunderland. Income Identity Consumption function Investment function Government Expenditure Net export function Money market equilibrium (2)The questions in this section are related to the macroeconomic model of Sunderland. (a)The expression you are asked to derive in question #1b can be considered an aggregate demand curve. Do you agree? Explain your answer. (b)Sketch the graph of this expression for P = 1,2,3,4,5 and label it as AD curve. On the same graph, include a full employment aggregate supply curve consistent with the level of output where P = 1. Show, in the context of this graph, what happens to the price level if the economy experiences a supply shock due to extremely bad weather condition. (c)Briefly explain, with strong theoretical support, the inverse relationship between net export (NX) and Interest rate in the net export function.
(1)The following macroeconomic model describes the economy of Sunderland. 1. Y= C + +G+NX 2. C = 220 + 0.63 Y 3. 1 = 1000- 2000R 4. G = Go 5. NX = 525 -0.10Y-500R 6. M (0.1583Y- 1000R)P (a)ls it a fair characterization to refer to equation #2 as a "simple" consumption function? Explain. (b)Derive the expression for equilibrium real output, Y, for this economy. Note: In your final expression for Y, restrict coefficient values to three decimal points. (c) Suppose government spending is 1200 , money supply by the Central Bank is 900 and the price level is 1, find the value of GDP (Y) and equilibrium interest rate (R) for Sunderland. Income Identity Consumption function Investment function Government Expenditure Net export function Money market equilibrium (2)The questions in this section are related to the macroeconomic model of Sunderland. (a)The expression you are asked to derive in question #1b can be considered an aggregate demand curve. Do you agree? Explain your answer. (b)Sketch the graph of this expression for P = 1,2,3,4,5 and label it as AD curve. On the same graph, include a full employment aggregate supply curve consistent with the level of output where P = 1. Show, in the context of this graph, what happens to the price level if the economy experiences a supply shock due to extremely bad weather condition. (c)Briefly explain, with strong theoretical support, the inverse relationship between net export (NX) and Interest rate in the net export function.
Chapter2: Mathematics For Microeconomics
Section: Chapter Questions
Problem 2.4P
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you