C. Consider an economy described by the following equations: Y = C+I+G+NX K = 2,500 40,000...

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C. Consider an economy described by the following equations: Y = C+I+G+NX K = 2,500 40,000 = K0.5 0.5 = 2000 T = 2000 C = 600

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Answer 1

Answer #1

1) long run level of output is full employment level of output so full usage of capital and labour.

Y=√K*√L=√2500*√40000=50*200=10,000

2)Y=C+I+G+NX=600+0.8(10,000-2000)+2000-40*10+2000+1000-400e-0.002*10,000

10,000=600+6400+2000-400+2000+1000-400e-20

10,000=11,580-400e

e=1580/400=3.95

3) National saving(S)=Y-C-G=10,000-600-6400-2000=1000

Investment(I)=2000-40*10=1600

Traded balance (NX)=1000-400*3.95-20=-600

4)Y=10,000

T=2000-200=1800

Y=C+I+G+NX

10,000=600+0.8(10,000-1800)+1600+2000+1000-400e-20

10,000=600+6560+1600+2000+1000-400e-20

10,000=11,740-400e

e=1740/400=4.35

National saving=Y-C-G=10,000-600-6560-2000=840

Investment=2000-40*10=1600

Trade balance(NX)=1000-400*4.35-20=-760

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Answer 2

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C. Consider an economy described by the following equations: Y = C+I+G+NX K = 2,500 40,000...

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