Question

ANSWER ONLY QUESTION 2 1. A country exports the same amount as it imports, hence net exports =0. The following equations describe its national accounts: National Accounts Expenditure Identity: Y = C + G + 1 Household Consumption: C = 180 +0.61Y -T) Government Expenditure: G=600 Private Sector Investment: I=1000-200R, R=2 Tax Revenue: T=0.17 (a) Find Y, T, C (b) Compute C/Y, G/Y and I/Y (percentage) (c) Find the government deficit: D= G-T 2. Re-solve for Y in exercise 1., but this time do not substitute for R. Thus, the investment function will be l=1100-200R. Now Y will be expressed as a linear function of R. Invert the function so that R is a function of Y. This is called the "IS" function. IS curve Interest Rate R oininiwirsinvincininindia 0 500 1000 1500 2000 2500 3000 3500 4000 45005000 GDP Y

Answer 1

C=180+.6(Y-T)

T-.1Y

C=180+ .6(Y-.1Y)

=180-.54Yd

G=600

I-=1000-200R

when R=2

I= 1000-2*200

=600

Y= C+I+G

Y=180-.54Yd +1000-200R+ 600

Y-.54Yd= 1380

.46Y= 1380

y= $\frac{1380}{.46}$

= 3000

T= .1*3000

=300

c=180-.6(3000-300)

=1800

$\frac{C}{Y}=\frac{1800}{3000}*100=60$

$\frac{G}{Y}=\frac{600}{3000}*100=20$

1 y 600 3000 *100 = 20

D=G-T

600-300=300

IS FUNCTION is

$Y=Ke\left [ A-bi \right ]$

Ke= expenditure multiplier

=$\frac{1}{1-MPC}$

$\frac{1}{1-.6}=2.5$

A= auntonomous investment expenditure+ autonomous consumption

A=1100+180=1380

Y=2.5(1280-200R)

Y=3200-50R