A Classical Economy Is Described by the Following Equations

question 70

Essay

A classical economy is described by the following equations:
Cᵈ = 500 + 0.5(Y - T)- 100r
Iᵈ = 350 - 100r
L = 0.5Y - 200I
Y = 1850
πᵉ = 0.05
Government spending and taxes are equal where T = G = 200.The nominal money supply M = 3560.
a.What are the equilibrium values of the real interest rate,the price level,consumption,and investment?
b.Suppose an economic shock increases desired investment by 10,so it is now Iᵈ = 360 - 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment?
c.Returning to the initial situation in part (a),suppose an economic shock increases desired consumption by 10,so it is now Cᵈ = 510 + 0.5 (Y - T)- 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment?

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Definitions:

Token Economy

A form of behavior modification that involves rewarding desired behaviors with tokens that can later be exchanged for various rewards.

Operant Conditioning

A learning operation where the modification of behavior power is executed by providing bonuses or admonishments.

Systematic Desensitization

A behavioral therapy technique used to reduce phobias and anxieties through gradual exposure to the feared object or situation.

Behavior Modification

A therapy approach that focuses on changing undesirable behaviors through reinforcement techniques.