# (a) Given that money supply is 1400, consumption equation is represented as c= 120 + 0.7 (Y-T),…

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(a) Given that money supply is 1400, consumption equation is

represented as c= 120 + 0.7 (Y-T),… 2 answers below » (a) Given that money supply is 1400, consumption equation is

represented as c= 120 + 0.7 (Y-T), investment equation is I=200-10r, where r is

the real interest rate while Taxes (T) and Government expenditure are 200 and

400 respectively. The real money

demand function is expressed as m/p=0.1y-100r

(units in million) (i)Solve for

equilibrium real output and equilibrium interest rate (6marks) (ii) Assume that

autonomous investment increases by 300,compute the investment multiplier and analyze

the new impact on income and

consumption.(6marks) iii. What is the effect of monetary policy in an View complete question » (a) Given that money supply is 1400, consumption equation is

represented as c= 120 + 0.7 (Y-T), investment equation is I=200-10r, where r is

the real interest rate while Taxes (T) and Government expenditure are 200 and

400 respectively. The real money

demand function is expressed as m/p=0.1y-100r

(units in million) (i)Solve for

equilibrium real output and equilibrium interest rate (6marks) (ii) Assume that

autonomous investment increases by 300,compute the investment multiplier and analyze

the new impact on income and

consumption.(6marks) iii. What is the effect of monetary policy in an economy

where capital mobility is perfectly elastic? ( Hint use mundell-flemming model) iv. The central bank is a necessary condition for deficit in

a fixed exchange rate regime, discuss View less » Aug 13 2014 01:52 AM