Answer to Question #48889 in Macroeconomics for Harun
(a) Given that money supply is KSh 1400 millions, autonomous consumption is KSh120 million, while the responsiveness of consumption to changes in disposable income is estimated to be 80% by the ministry of planning. Aggregate autonomous investment is ksh 200 million investment while one % increase in interest rate changes investment by KSh10 millions. The government collected KSh 200 million as tax revenue and wishes to increase expenditure by 10% above the revenue collected. The transactionary and precautionary demand for money function is expressed as mt/p=0.1y while the speculative money demand ms/p is -100r . (i)Solve for equilibrium real output and equilibrium interest rate (ii) What is the effect of the new expenditure plan impact on income and consumption?
MS = 1400 millions, C0 = 120 million, c = 0.8, I = 200 million investment, 1% increase in interest rate changes investment by 10 millions, T = 200 million, wishes to increase expenditure by 10% above the revenue collected. Transactionary and precautionary demand for money mt/p = 0.1y, speculative money demand ms/p = -100r . (i)Solve for equilibrium real output and equilibrium interest rate As money demand equals money supply in equilibrium, so MS = MD 0.1y + 100r = 1400 Output Y = C + I + G + NX, where C - consumption, I - investment, G - government purchases, NX - net export. Y = 120 + 0.8Y + 200 + 200*0.1 0.2Y = 340 Y = 1700 million As 0.1y + 100r = 1400, then 0.1*1700 + 100r = 1400, r = 12.3%
Hi Expert, so I wasn't able to try the new version because they closed of the submission portal. Oh well,
but I want to give you my sincerest thank you for helping me throughout this assignment! Honestly, you are an absolute legend! Your line by line explanation was superb and honestly helped me understand most of the concept I learnt during my semester better than my own lecturer! Thank you for consistently helping and being persistent with the versions!
You've honestly been the greatest help and I would have been so lost if it wasn't without your expertise!
So thank you once again!