Consider an economy described by the following equations: 100 0.75( ) 500 50 125 100 5 1

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Consider an economy described by the following equations:

100 0.75( )

500 50 125 100 5 1 1 5 1 2 5 2 5

5 Y C I G C Y T I r G

T where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural level of output), GDP would be 2,000.

a. Explain the meaning of each of these equations.

b. What is the marginal propensity to consume in this economy?

c. Suppose the central bank adjusts the money supply to maintain the interest rate at 4 percent, so r 5

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Principles Of Macroeconomics

ISBN: 9780357133491

9th Edition

Authors: N. Gregory Mankiw

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Question Posted: Sep 28, 2024 08:01 AM

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Consider an economy described by the following equations: 100 0.75( ) 500 50 125 100 5 1

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Principles Of Macroeconomics

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