Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pls solve as much as u can humble request Classical Model (35 points) Use the following information for the economy to answer the sections in

Pls solve as much as u can humble request

image text in transcribed
Classical Model (35 points) Use the following information for the economy to answer the sections in this question. The supply side of the economy is defined by: Y - 6K 25 3/5 K = 200 L = 400 The demand side of the economy is defined by: C = 150 + 0.6(Y-T) I= 800 - 3000r G - 500 T = 400 1. Prove this production function has constant returns to scale. Start by letting z = a positive scalar. [4] 2. Using the production function, calculate the follleaving variables. Be sure to show your work for credit. No credit will be given if you do not show your work [4] . The supply of output (Y). The real wage (W/P). Total payments to labor (NOTE: This is not the share of income, it is the total payments) 3. Compute the equilibrium interest rate. [4] 4. Compute consumption, investment and national savings. [6] 5. Suppose the government wishes to balance its budget through changing government spending. Illustrate how these changes affects the loanable funds market diagram. Assume savings depends on the real interest rate for the remainder of this question. Clearly illustrate the axes (using symbols and words), curves, and initial (Point A) and final (Point B) equilibrium on your diagram. [5] 6. How does the policy change in #5 affect the following variables (given the assumption about savings in #5): real interest rate, output, consumption, investment, public savings, private savings, and capital share of income. No explanations are necessary, but you may explain for partial credit. [7] 7. Does the policy in #5-#6 lead to crowding out? Explain why or why not. You should briefly define crowding out, and use your answers from #5-#6 to support your answer. You will not receive credit for this question unless your answers are consistent with your work from #5-#6. [5]

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Cases An Active Learning Approach

Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt

2nd Edition

0130674842, 978-0130674845

Students also viewed these Economics questions