An economy has full-employment output of 1000. Desired consumption and desired investment are
Cd = 200 + 0.8(Y-T) - 500r
Id = 200 - 500r
Government purchases are 196 and taxes are T = 20 + 0.25Y
Money demand is Md/P = 0.5Y - 250(r + πe)
Where the expected rate of inflation πe = 0.10. The nominal supply of money
M = 9890.
a. what are the general equilibrium values of the real interest rate, price level , consumption, and investment?
b. suppose that government purchases are increased to G = 216. What are the new general equilibrium values of the real interest rate, the price level, consumption, and investment?