3.If the consumption function of permanent income has the following form:

C = 380 + 0.8 Y^p. Assuming that consumers estimate their disposable income through the simple calculation of the average disposable income of the present and past year:

Y^p = 0.5 ( Y_d1 + Y_d0)

Where Y_d is disposable income. Solve the following:

a) Suppose that disposable income (Yd) in year zero and year one is equal to 220,000 What will the consumption be in year one?

b) Assuming that disposable income will increase to 250,500 in year 2 and keep for years to come. What will the consumption be in years 2 and 3 and in every subsequent year?

c) What is the marginal propensity to consume in the short and long run?

4.The money demand function is: (M/P)^d = 2,200 r , where r is the type interest in percentage; the money supply (M) = 2,200 and the price level (P) = 4. With this information solve the following:

a) Calculate the equilibrium interest rate.

b) If the price level remains fixed and the money supply increases from 2,200 At 2,400, the equilibrium interest rate will be:

c) If the price level remains fixed and the money supply decreases from 2,200 to 1,400, the equilibrium interest rate will be: