The given relations describe the imaginary economy of the starter land:
Y = C + I + G + X ………………………………..(i)
C = 220 + 0.63Y…………………………………(ii)
I = 1000- 2000R …………………………………(iii)
G = Go……………………………………………….(iv)
X = 525- 0.1Y- 500R……………………………(v)
M = (0.1583Y – 1000R)P……………………..(vi)
Q1. In brief describe why net export is inversely related to the interest rate in equation (v).
Q2. Derive the expression for the aggregate demand curve and describe why this is an aggregate demand equation.
Q3. Find out the general equilibrium real output (y) and interest rate (R) in this economy given that the government purchases are 1200, money supply is 900 and the price level is 1.
Q4. Find out the level of aggregate consumption, investment and total export in this economy.