12.*Here is another set of equations describing an economy: (LO5) C = 14,400 + 0.5(Y T)...

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12.*Here is another set of equations describing an economy: (LO5) C = 14,400 + 0.5(Y − T) − 40,000r, I P = 8,000 − 20,000r, G = 7,800, NX = 1,800, T = 8,000, Y* = 40,000. a. Find a numerical equation relating planned aggregate expenditure to output and to the real interest rate. b. At what value should the Fed set the real interest rate to eliminate any output gap? (Hint: Set output Y equal to the value of potential output given above in the equation you found in part a. Then solve for the real interest rate that also sets planned aggregate expenditure equal to potential output.)

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Principles Of Macroeconomics

ISBN: 9781264250356

8th Edition

Authors: Robert Frank, Ben Bernanke, Kate Antonovics, Ori Heffetz

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