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Calculate GDP and find the multiplier using the following information : C = 100 + 0
Calculate GDP and find the multiplier using the following information : C = 100 + 0.80 Y , I= 1000 ( G = 0 , EXP = 0 and IMP =0 )
Question # 2 Suppose that the monetary base is $ 20 million , that the general public wish to hold 20% of their their money in cash and the remaining 80% in bank deposits, and that banks wish to hold a 5% cash reserve . What will be the size of the money stock according to the ratios approach ?
Question # 3 Solve for the value of GDP and find the multiplier given the following relationships and values of exogenous variables : C = 100 + 0.8 ( Y – T ) ; IMP = 0.2 5 Y ; I = 1000 ; G = 100 ; T = 100 X ; EXP = 500 .
Expert Solution
Solution
(1)
Here we know
For an open economy
Y(GDP)=C+I+G+NX
where
Y=GDP
C(Consumption)= 100+0.8Y
I ( Investment)=1000
G(Government expenditure)=0
NX(Net export or export minus import )=0
So
Y=100+0.8Y+1000
Y=1100+0.8Y
Y-0.8Y=1100
0.2Y=1100
Y=1100/0.2
Y=5500(Equilibirum GDP)
and
Multiplier (M)=1/(1-MPC)
where
MPC(Marginal property to consume )=0.8
so
M=1/(1-0.8)
M=1/0.2
M=5(Multilplier)
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