Q.4. Suppose the following functions are estimated for Pakistan economy. The consumption function is G= 200 + 0.75(Y T). The investment function is I= 200 – 25 whereaS Government purchases and taxes are both 100b. The money demand function in Pakistan is a. Find the equilibrium interest rate Pand the equilibrium level of income Show in dingram. 100. The money supply is 1,000b and the price level Pis 2. b. Suppose that the price level rises from 2 to 4. What are the new equilibrium interest rate and level of income? Show the effect of price increase in the graph drawn in part a c. Derive the equation for the aggregate demand curve. What happens to this aggregate demand curve if tight monetary policy is applied? Graphically Explain.

Q.4. Suppose the following functions are estimated for Pakistan economy. The consumption function is G= 200 + 0.75(Y T). The investment function is I= 200 – 25 whereaS Government purchases and taxes are both 100b. The money demand function in Pakistan is a. Find the equilibrium interest rate Pand the equilibrium level of income Show in dingram. 100. The money supply is 1,000b and the price level Pis 2. b. Suppose that the price level rises from 2 to 4. What are the new equilibrium interest rate and level of income? Show the effect of price increase in the graph drawn in part a c. Derive the equation for the aggregate demand curve. What happens to this aggregate demand curve if tight monetary policy is applied? Graphically Explain.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter20: Exchange Rates And The Macroeconomy

Section: Chapter Questions

Problem 3TY

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