Problem 1. C = 500 + 0.75Y, I = 1,000,G = 1,600, X = 300, M = 400. Calculate the equilibrium values of C and S. Is there any evidence of “crowding out”? Explain.
According to Okun’s Law, what is the current unemployment rate, if the natural rate of unemployment = 7% and full-employment GDP = 12,766?
Problem 2. Recall that for equilibrium, AD = AS, Suppose AD and AS , both functions of real GDP (Y) and the price level (P), are known to be:
AD: Y = 3000 – 200P
AS: Y = 1500 + 100P
Determine :
i. the equilibrium GDP and P
ii. if the money supply = 2,500
iii. the equilibrium rate of interest(i) if money demand Md = 2600-1000i