Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G, and desired investment is Id = 1000 - 45,000r. Real money demand is Md/P = Y - 6000i. Other variables are ?e = 0.03, G = 500, 
= 1000, and M = 2100.(a)Find the equilibrium values of the real interest rate, consumption, investment, and the price level.(b)Suppose government purchases decline to 400. What happens to the variables listed in part (a)? (c)Suppose government purchases rise to 600. What happens to the variables listed in part (a)? (d)What feature in this example leads to the result that you don't need to know the amount of taxes collected by the government to find the equilibrium?
What will be an ideal response?
| (a) | r = 0.02, C = 400, I = 100, P = 3. |
| (b) | C = 500, other variables are unchanged. |
| (c) | C = 300, other variables are unchanged. |
| (d) | Desired consumption depends on the level of government purchases, not taxes. This is an |
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Compensation of losers from opening an economy to international trade is not common because:
A) losers don't lose so much that they would require to be compensated. B) the loss is made up through the availability of a wider array of goods and services. C) it is difficult for governments to carry out such compensation policies. D) the government will have to transfer huge amounts of money to compensate losers.
In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?
a. $225 billion b. $510 billion c. $735 billion d. $1,390 billion