Question

1. Consumption function: C = 40 + 0.8Yd Tax function: T = 0.25Y Private investment function (I) = 500 – 16r, where r= interest rate Exogenous Government expenditure = 500 Transaction demand for money (Mt) = 0.25Y Speculative demand for money (Ma) = 175 - 50r Money Supply: Ms = 225 a) Find out income and interest rate that clear both the goods and the money markets.
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Answer 1

Answer:

(d) We are now asked to look at the effect that a monetary expansion will have on the equilibrium values for Output, Interest Rate...