6 Consider the following economy. Desired consumption Cd = 325 + O.5(Y - T) - 500r. Desired...

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6 Consider the following economy. Desired consumption Cd = 325 + O.5(Y - T) - 500r. Desired investment Id = 200 - 500r. Government purchases G = 150. Taxes T = 150. Real money demand L = 0.5Y - 1000r. Money supply M = 6000. Full-employment output Y = 1000.

a. Calculate the full-employment values of the real interest rate, the price level, consumption, and investment.

b. What are the values of Cf.'S• �'S' Cf.LM• �LM and R, for this economy? (You'll have to refer back to Appendix 9.B for definitions of these coefficients.)

e. Suppose that the price level is fixed at P = 15. What are the short-run equilibrium values of output and the real interest rate?

d. With the price level still fixed at P = 15, suppose that government purchases increase from G = 150 to G = 250. What are the new values of Cf.,S and the shortrun equilibrium level of output?

e. Use Eq. (11.C5) to compute the government purchases multiplier. Use your answer to compute the short-run change in Y resulting from an increase in government purchases from G = 150 to G = 250. How does your answer here compare to your an swer in Part (d)?

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