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##### HDS S13 Assignment

**Description**

solution

**Question**

Question;1. Consider the following three-good economy:(a) Using the above table calculate the nominal GDP for 1987.(b) Using the above table calculate real GDP for 1988 using 1987 as the base year.(c) Using the above table calculate the percentage increase in Real GDP from 1987 to 1988 using1987 as the base year.(d) Using the above table calculate Real GDP in 1987 using 1988 as the base year.(e) Using the above table calculate the percentage increase in Real GDP from 1987 to 1988 using1988 as the base year.2. Assume an economy is represented by the following:C=100+0.5Yd, T=2000, G=2000, I=200(a) Calculate the equilibrium level of output. Graph your solution.(b) If the government spending increases by 100 what is the new equilibrium level of output?Use the government spending multiplier.(c) If the government increases taxes by 100 what is the new equilibrium level of output? Use thetax multiplier.(d) If the government increases taxes and spending by 100 what is the new equilibrium level ofoutput?(e) Calculate the equilibrium level of output in case where taxes depend on income according tothe following: T=-50+0.25Y.3. (a) Using a graphical analysis show the effects of a contractionary monetary policy on theequilibrium interest rate, investment and output. Make sure you clearly label all the curves inyour graphs and the initial and final equilibria.(b) Using a graphical analysis show the effects of a contractionary fiscal policy on theequilibrium interest rate, investment and output. Make sure you clearly label all the curves inyour graphs and the initial and final equilibria. Is there any crowding-out due to thecontractionary fiscal policy?4. Use AD and AS curves to discuss the effects of the following events on the equilibrium pricelevel and equilibrium level of output in the short run. Make sure you clearly label all the curvesin your graphs and the initial and final equilibria.(a) A government spending increase holding taxes constant with the economy operating near fullcapacity.(b) A decrease in the money supply during a period of high unemployment and excess industrialcapacity.(c) An increase in the price of oil caused by a war in the Middle East, assuming that the Fedattempts to keep interest rates constant by accommodating inflation.(d) An increase in taxes and a cut in government spending supported by a cooperative Fed actingto keep output from falling.

Paper#55837 | Written in 18-Jul-2015

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