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**ECN 101 Intermediate Macroeconomics Homework 4**

- From Economics, General Economics

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**ECN 101 Intermediate Macroeconomics Homework 41. Basic Multiplier Model: ReviewSuppose the components of the Aggregate Expenditure as follows:**

Y = C + I + G + NX

C = 200 + .8Yd = 200 + .8 (Y – T)

I = 800

G = 600

NX = 200

T = 800

**a)**Is the government budget balanced, in deficit or in surplus? Explain.

**b)**What is the value of the expenditures multiplier?

**b)**Calculate the equilibrium income.

**c)**If Government Spending (G) increases by 300, calculate the value of the new equilibrium income? How much did equilibrium income change as a result of the increase in investments? What is the effect on the budget?

**2. AS and AD**

A. Using your AS/AD model, illustrate how the following affects the economy in the short run (SRAS is horizontal).

A. Using your AS/AD model, illustrate how the following affects the economy in the short run (SRAS is horizontal).

**i.**The government increases spending.

**ii.**Wages decrease significantly as a result of a large wave of immigration.

**iii.**The government increases taxes in order to minimize the budget deficit.

**B. Redo part A, using your long run AS-AD model (LRAS is vertical). Make sure you illustrate the transition from short run to long run.**

3. Finding the Equilibrium

Assume that the economy can be described as the following:

3. Finding the Equilibrium

Assume that the economy can be described as the following:

C= .8(Y-T)

I = 800 – 2000 r

G = 1000

T = 1000

(M/P)D = .4Y – 4000r

(M/P)S = 1200

**b)**Derive the equation for the IS curve, expressing Y as a function of r.

**c)**Derive the equation for the LM curve, expressing Y as a function of r.

**d)**Find the equilibrium values for Y, r, C, I.

**e)**Compute for the new equilibrium values for Y, C, I and r if G increases to 1200.

**ECN 101 Intermediate Macroeconomics Homework 4**

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- Submitted On 26 Jul, 2017 04:08:44

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