The following are structural equations for a representative economy.
Y =C + I + G
S =180 + 500r
I =200 − 1500r
Ys =(1222/3) + (25/3)N − (1/24)N2
Ns =60 + 8(w/p)
Nd =100 − 12(w/p)
Md/p =Y/4
Ms =M
where S is household savings. We keep the same ratings as before.
(a) What is the value of the speed of circulation of currency? 3 marks
(b) Show that the real wage level (w/p) that balances the labour market is the same as before. 2 marks
(c) Calculate the equilibrium price level P knowing that M = 200 and G = 80. Find w? 4 marks
(d) Government spending is assumed to increase to the G = 100 level. How is the macroeconomic equilibrium affected? 4 marks
(e) Is this an effective way to increase activity? On what assumptions does this result depend? 3 marks
(f) It is assumed that there are labour market rigidities that set the level of real
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