Question

B.A./B.Sc. (HONOURS) III & M.A.M.Sc. (PREVIOUS) - 2021 Q.1 Consider the following information about a hypothetical economy: 1. Y = A (0.025K -0.5N)N. 2 3. K -2000 3 (18 4 N - 18+ 5. C=2004 (Y - T)-300r 6.7 -75+ 2. A یا واقعا 8+(1) 6 7--75+ 7.7100-1007 8. G 100 9. L=0.5Y - 2000 10. M - 6300 11. ^' = 0,10 Now using this information, zinswer the following: (a) Brielly explain the meaning of each equation in the above model. What are the values of C... L, and N. Give economic interpretation of each. (b) Add all relevant identities and equilibriuni conditions to complete the model. Write down the endogenous und exogenous variables. (c) Derive the equations of the IS, LM and AD curves. Determine the numerical values of the slopes and intercepts of these curves and interpret cach? (d) Determine the equilibrium levels of all endogenous variables under the assumptions of the classical mucroeconomic framework. (e) Beginning from the initial classical equilibrium, suppose that the central bank increases the money supply by 420 while price remains fixed at its initial long run equilibrium level. What will be the impact of this policy on all endogenous variables in short run and long run? (1) Compare the equilibrium positioijs in (d) and (e) in one graph indicating all points. (B) If government wants to attain same output change as in part (e) using fiscal policy rather than the monetary expansion, by what iumount should it change its policy instruments. Analyze all possible options the government may exercise. What will be the effect of sucli policies on all endogenous variables? (h) Conipure the equilibrium positions in (d) and (8) in one graph indicating all points. (1) Starting from the initial equilibrium position agaio, suppose that the capital stock increases by 170. What will be the impact of this expansion on labour market equilibrium and aggregate supply of output? Calculate values of all endogenous variables and give intuitive explanation of the results. 0 Compare the equilibrium positions in (d) and (b) indicating all points, (k) Suppose that 1 → in Equation.9 of the model. How will it affect the shape of the money demand and the LM curve. Will the monetary policy of part (e) have the same effect as calculated above or any different? Expluuin using graphs and multipliers.​

Answer 1

Answer:

An equilibrium level of GDP in hypothetical economy is

Y=C+I+G+NX

Y=300+0.8Y +200+200-100

Y= 600+0.8Y

0.2Y = 600

Y= $3000 billions

I given answer related to this hypothetical economy .

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