Households save 12% of their total income Investment is given by� = 3500 − 10000�
The tax rate is 20% The real interest rate is 4% (r=0.4)
Government expenditures are 2500
Exports are 1900
The import rate is 18%
a. Calculate the numerical value of the following and put your answer. You can show the
graph if you are able to draw using programs.
• Current level of investment
• Equilibrium aggregate demand
• Equilibrium personal saving
• The government budget surplus or deficit (indicate which) in equilibrium
• The change in equilibrium aggregate demand if the real interest rate rise to 8%
1
Expert's answer
2017-02-24T15:03:05-0500
a) Current level of investment I=3500-10000r I=3500-10000*0.04=3100
b) Equilibrium aggregate demand S(personal)=I+NX-(T-G) 0.12Y=3100+1900-0.18Y-0.2Y+2500 Y=15000
c) Equilibrium personal saving S(personal)=3100+1900-2700-3000+2500=1700
d) The government budget surplus in equilibrium G-T=2500-0.2*15000=(-500) G<T - budget surplus amounted to 500
e) The change in equilibrium aggregate demand if the real interest rate rise to 8% I'=3500-10000*0.08=2700 0.2Y'=2700+1900-0.18Y'+2500-0.2Y' Y'=14200 ΔY=14200-15000=-800 - equilibrium aggregate demand decreases by 800
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