Q. You read in a business magazine that computer firms are reaping high profits. Assume that the computer market is perfectly competitive. With this in mind, what do you expect to happen over time to the following?
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?