Assume That an Economy Is Described by the IS Curve $Y = 4,000$

question 125

Essay

Assume that an economy is described by the IS curve Y = 3,600 + 3G - 2T - 150r and the LM curve Y = 2 M/P + 100r [or r = 0.01Y - 0.02(M/P)]. The investment function for this economy is 1,000 - 50r. The consumption function is C = 200 + (2/3)(Y - T). Long-run equilibrium output for this economy is 4,000. The price level is 1.0. a. Assume that government spending is fixed at 1,200 . The government wants to achieve a level of investment equal to 900 and also achieve $Y = 4,000$ . What level of $r$ is needed for $I =$ 900 ? What levels of $T$ and $M$ must be set to achieve the two goals? What will be the levels of private saving, public saving, and national saving? (Hint: Check $C + I + G = Y$ )
b. Now assume that the government wants to cut taxes to 1,000 . With $G$ set at 1,200 , what will the interest rate be at $Y = 4,000$ ? What must be the value of $M$ ? What will $I$ be? What will be the levels of private, public, and national saving? (Hint: Check $C + I + G = Y$ )
c. Which set of policies may be referred to as tight fiscal, loose money? Which set of policies may be referred to as loose fiscal, tight money? Which "policy mix" most encourages investment?

Learn the financial consequences of ownership interest transactions among partners and third parties.

Understand how the admission of a new partner by contributing assets or buying an interest affects the partnership's owners' equity.

Understand the process and implications of admitting a new partner into a partnership.

Learn the calculation and distribution of capital balances following the admission of a new partner.

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Definitions:

Utility

In economics, the satisfaction or benefit derived by consuming a product or service.

Pumpkin Pie

A traditional American dessert made from a spiced pumpkin-based custard filling in a pie crust, often served during fall and Thanksgiving.

Want

A desire for goods or services that are not necessary for basic survival but are perceived as desirable.

Utility

In economics, refers to the total satisfaction received from consuming a good or service.