Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose the following equations describe the relationship between the long-run shares of spending in GDP and the interest rate (R), measured in decimal fractions (that

Suppose the following equations describe the relationship between the long-run shares of spending in GDP and the interest rate (R), measured in decimal fractions (that is, R = 0.05 means that the interest rate is 5 percent).

Equations: C/Y* = 0.7 0.2R

I/Y* = 0.2 0.8R

NX/Y* = 0.1 0.95

G/Y* =0 .2

a) Use algebra to determine the values of the interest rate and the long-run shares of spending in GDP.

b) Do the calculations again for a long-run government share of 17 percent rather than 20 percent.

c) Suppose that the share of government purchases changes from 20 percent to 17 percent. Describe, in words, the mechanism by which each of the other shares changes.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

Students also viewed these Accounting questions

Question

What is the meaning and definition of E-Business?

Answered: 1 week ago