(Solved by Humans)-(more difficult) consider an economy in which government

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Academic Level: Undergrad. (yrs 3-4)

Paper Format: APA

Pages: 5 Words: 1375

Question

(more difficult) consider an economy in which government purchases, taxes, an net exports are all zero. The consumption function is

C = 300 + .75Y

and investment spending (I) depends on the rate of interest (r) in the following way:

I = 1,000 - 100r

Find the equilibrium GDP if the Fed makes the rate of interest (a) 2 percent (r = .02), (b) 5 percent, and (c) 10 percent.



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