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Consider the neoclassical closed economy model: Y=COY-T)+1(t) + G Y=F(K.L) M/P L(r+z* Y) CY-T) is describing consumptions as
d) What is the difference between the nominal interest rate and the real interest rate? Why is this important? Write the Fish


Calculate the interest rate r, (hint: assume n -0, use the two equations describing f) Y, I in the beginning)
Consider the neoclassical closed economy model: Y=COY-T)+1(t) + G Y=F(K.L) M/P L(r+z* Y) CY-T) is describing consumptions as a function of disposable income, Kand L are fixed and do not change over time, G and T are chosen by government. And are exogenous and fixed. 1- Suppose K 150, L=500 Y-2.5 K"L- C 12+0.7(Y-T) 250 G 250, T I60-400r P 1 a 0.3 a) Calculate GDP value: I Derive the equations for marginal product of labor & marginal product of capital in b) the economy MPL= a. b. MPK How much of the income should go to labor, and how much should go to capital? c) (hint, you can use MPL/MPK to get wage/rent, show equation and value) Labor income: Capital Income"
d) What is the difference between the nominal interest rate and the real interest rate? Why is this important? Write the Fisher equation: e) M/P L(r+n Y) is the demand equation for money (liquidity), does real money demand M/P increase with for each term in the L function (r, n, Y), please say if M/P has a positive or negative relationship, explain the intuition (1 sentence). Y
Calculate the interest rate r, (hint: assume n -0, use the two equations describing f) Y, I in the beginning)
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