Author Question: Using the values in the table above, and assuming that the real interest rate equals 4, calculate ... (Read 42 times)

melly21297 · **on:** Jun 30, 2018

Using the values in the table above, and assuming that the real interest rate equals 4, calculate equilibrium values for consumption, household saving, investment, and net exports. Use these values to confirm that the goods market is in equilibrium.

What will be an ideal response?

Question 2

In Figure 13.1, the zero lower bound is displayed at ________.

A) point 1
B) point 2
C)
D) the origin (intersection of the axes)
E) none of the above

ntsoane kedibone · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Entering the given values in the IS curve equation yields Y = 18.7. Plugging Y and r into the consumption equation yields C = 12.7. Subtracting C + T from Y gives household saving = 4. The investment equation using these values of Y and r yields I = 3.4. The net exports equation yields NX = 0.6. Note that S = NX + I - (G - T), so the goods market is in equilibrium. Also, Y = C + I + G + NX, so the goods market is in equilibrium.

Answer to Question 2

B