Question An economy is described by the following: Autonomous consumption 200 Money for precaution..

Question

An economy is described by the following: Autonomous consumption 200 Money for precaution 10 Taxes 0.2Y Autonomous Investment 400 Exports 100 Marginal propensity to import 30.1 Demand for money for speculative motive 300-3000i Sensitivity of the investment to a change in the interest rate 2000 Public expenditure 3900 Money supply 3 1500 Sensitivity ofthe demand for money for transaction motive 30.6 Marginal propensity to consume 0.8 1. Write the consumption and the investment function. Explain. (1 pt) 2. Define and determine the IS curve. (2 pts) 3. Write the demand for money function. Explain the three components of the demand for money. (1 pt) 4. Define and determine the LM curve. (2 pts) 5. What are the equilibrium values of the interest rate and national income? Then calculate the value of consumption and investment. (4 pts) 6. The marginal propensity to consume decreases to 0.7. How does this change impact the equilibrium? Detail your calculations (2 pts). 7. Keep considering a marginal propensity to consume equal to 0.7. The government decides to increase its spending to 1000. a. Calculate the new is equation using the multiplier (2 pts) b. What is the new equilibrium of interest rate and national income in our economy? Then calculate the value of consumption and investment. (1.5 pt) c. What can you conclude on the effect of government spending? (1.5 pt) d. Represent the situation from question 6 and the new situation (question 7) on a graph (3 pt)