Question
Consider an economy described by the following: C = $6.5 trillion I = $2.6 trillion G = $7 trillion T = $6.0 trillion (NX) =
Consider an economy described by the following: C = $6.5 trillion I = $2.6 trillion G = $7 trillion T = $6.0 trillion (NX) = -$2.0 trillion f = 2 mpc = 0.7 d = 0.7 x = 0.2 = 0.9 r= 3 a- Derive expressions for the MP curve and the AD curve. b- Assume thatp = 2. Calculate the real interest rate, the equilibrium level of output, consumption, planned investment, and net exports. c- Suppose the Fed increases r to r = 4. Calculate the real interest rate, the equilibrium level of output, consumption, planned investment, and net exports at this new level of r. d- Considering that output, consumption, planned investment, and net exports all decreased in part (c), why might the Fed choose to increase r?
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