Kindly help to solve the following.This question is complete
Use the information above to get expressions for the consumption function and the AE equation. The vertical intercept for the consumption function is . 9. The slope of the consumption function is . 10. The vertical intercept of the AE equation is . 11. The slope of the AE equation is . 12. Equilibrium output is equal to . 13. Equilibrium consumption is equal to . 14. Suppose the investment demand function changes and is now |=700 - 50(r). The new value of equilibrium output is . 15. The new value of equilibrium consumption is . 16.Recall that the consumption function is C = 800 +.75(Y - T) - 30 (r). The Keynesian spending multiplier in this economy is .1. (15 points) For the exercises below, transform the regression equation Yi = 60 +81Xli +$2X2i +pi so that you can use a t-statistic to test for the following restrictions. Show all your steps for full credit. a. (5 points) B1 = 1262 b. (5 points) B1 - 82 = 2 a) If we assume normality of u, then we know the exact distribution of B1, a t student b) If we do not assume normality of u but n is large, then we approximate the sampling distribution 3 2. (15 points) Consider the following model to explain CEO salaries in terms of various factors: salary = 30 + Blsales + $2mktval + 83ceoten + u, where: salary = 1990 compensation, $1000s; sales = 1990 firm sales, millions; mktval = market value, end 1990, mills; ceoten = years as ceo with company Next you perform the following regression: * R2 = 0.2013, SER = 529.67 a) (5 pts) What does each estimated coefficient on the individual variables (and constant term) mean quantitatively (do not worry about standard errors, as they are not given, or the measures of fit)? b) (5 pts) What is the forecasted salary of a CEO working in a firm with sales equal to 5,000 millions, market value equal to 10,000 millions, and 10 years of tenure? c) (5 pts) Eliminating the variable sales from your regression, the estimation regression becomes:" salary = 613.436 + .019sales + .023mktval + 12.703ceoten + u salary = 641.059 + .0369mktval + 11.525ceoten + u R2 = 0.184, SER = 533.58 Why do you think that the effect of mktval has changed now over part b. (very briefly describe)?6. Policy coordination and the world economy Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, gov- ernment spending, and taxes are given by C = 10 + 0.8 (Y - T), I = 10, G =10, and 7 =10 Imports and exports are given by IM = 0.BY and X =03 Y where Y denotes foreign output. a. Solve for equilibrium output in the domestic economy, given Y". What is the multiplier in this economy? If we were to close the economy-so exports and imports were iden- tically equal to zero-what would the multiplier be? Why would the multiplier be different in a closed economy? b. Assume that the foreign economy is characterized by the same equations as the domestic economy (with as- terisks reversed). Use the two sets of equations to solve for the equilibrium output of each country. [Hint: Usethe equations for the foreign economy to solve for Y' as a function of Y and substitute this solution for Y* in part (a).] What is the multiplier for each country now? Why is it different from the open economy multiplier in part (a)? c. Assume that the domestic government, G, has a target level of output of 125. Assuming that the foreign government does not change G", what is the increase in G necessary to achieve the target output in the domestic economy? Solve for net exports and the budget deficit in each country. d. Suppose each government has a target level of output of 125 and that each government increases government spending by the same amount. What is the common in- crease in G and G necessary to achieve the target output in both countries? Solve for net exports and the budget deficit in each country. e. Why is fiscal coordination, such as the common increase in G and G* in part (d), difficult to achieve in practice
