(Answered) 1 assume the central bank of the economy described in the

Economics

1. Assume the central bank of the economy described in the last problem expands the money supply and manages to reduce the interest rate to 3.2 %. Determine the new equilibrium values of the endogenous variables.

2. The following is an extended version of the model in exercise #22. In this model r is treated as an endogenous variable with its value determined by income and the money supply,

C = 220 + 0.84YD
I = 130 + 0.09YD - 10.5r
r = -5 + 0.016Y - 0.02M0 T = 85 + 0.12Y

(a) Treat YD as a separate variable and write the model in matrix form (the coefficient matrix is now a 6 by 6 matrix). Determine the equilibrium values of the endogenous variables assuming G0 = 80 and M0 = 800.

(b) Calculate the model's multipliers.

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Microeconomics, Economics

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