1. Assume the central bank of the economy described in the last problem expands the money supply and manages to reduce the interest rate to 3.2 %. Determine the new equilibrium values of the endogenous variables.
2. The following is an extended version of the model in exercise #22. In this model r is treated as an endogenous variable with its value determined by income and the money supply,
C = 220 + 0.84YD
I = 130 + 0.09YD - 10.5r
r = -5 + 0.016Y - 0.02M0 T = 85 + 0.12Y
(a) Treat YD as a separate variable and write the model in matrix form (the coefficient matrix is now a 6 by 6 matrix). Determine the equilibrium values of the endogenous variables assuming G0 = 80 and M0 = 800.
(b) Calculate the model's multipliers.