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Homework answers / question archive / a) Write brief notes on the following economic theories, illustrate and give examples where necessary i) The permanent income hypothesis ii) Keynesian consumption function iii) Liquidity preference theory b) Given that the money supply is 1400, consumption equation is represented as c= 120 + 0

a) Write brief notes on the following economic theories, illustrate and give examples where necessary i) The permanent income hypothesis ii) Keynesian consumption function iii) Liquidity preference theory b) Given that the money supply is 1400, consumption equation is represented as c= 120 + 0

Economics

a) Write brief notes on the following economic theories, illustrate and give examples where necessary

i) The permanent income hypothesis

ii) Keynesian consumption function

iii) Liquidity preference theory

b) Given that the 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.

c) The ministry of finance is keen in ensuring that vision 2030 is realized.

Discuss some of the key projects that you believe can move the economy towards this target

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