Consider an economy described by the following:
|
C
|
=
|
3 trillion
|
mpc
|
=
|
0.8
|
|
I
|
=
|
1.3 trillion
|
d
|
=
|
0.3
|
|
G
|
equals=
|
3.5 trillion
|
x
|
=
|
0.1
|
|
T
|
equals=
|
3 trillion
|
lambdaλ
|
=
|
1.5
|
|
NX
|
equals=
|
-0.5 trillion
|
r
|
=
|
1
|
|
f
|
=
|
1
|
|
|
|
1. The expression for the MP curve is
2. The expression for the AD curve is:
3. Assume that π=1.5%. The real interest rate r is __%.
4. The equilibrium level of output is?
5. Consumption is ?
6. Investment is?
7. Net exports are?
8. Suppose the Fed increases r to r=2.5. The real interest rate is ?
9. The equilibrium level of output is?
10. Consumption is?
11. Planned investment is?
12. Net exports are ?
13. When the Fed increased r, output, consumption, planned investment, and net exports all decreased. The Fed increased r because it thinks the economy will (weaken/strengthen) in the future, or there is a risk that inflation will (fall/rise) fallrise in the future.