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Question 4 (30 points) Chapters 9 8: 10/11 Utopia is a closed economy and is characterized by the following equations: Consumption: C = 410 +
Question 4 (30 points) Chapters 9 8: 10/11 Utopia is a closed economy and is characterized by the following equations: Consumption: C = 410 + 0.75(Y T) 155r Investment: I = 1500 720r Government spending: G = 2200 Taxes: T = 2100 Real money demand: (Md/P) = L(Y,i) = 0.5Y 200i Expected ination: it\" = 0 Production function: Y = SKUE'LZ\"3 Note: Interest rates, i and r, are expressed in decimal points, i.e., if r = 0.075, then r = 7.5%. Suppose the IS-LM model can used be to describe Utopia, and answer the following questions. Keep your answers to a minimum of TI-IREE decimal points (for fractions). a) Derive the IS and LM equations for this economy. (4 points) b) The supply of capital and labour in this economy are both equal to 2000; and the level of the nominal money supply is 4992. Calculate the long-run or full-employment values of the output, consumption, investment, real interest rate, public saving, private saving, national saving, and price level. (4 points)
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