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autonomous aggregate demand / short-run output / multiplier

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Category: Economics > Macroeconomics
Subject: calculate autonomous aggregate demand / short-run output / multiplier
Details: C = 350 + 0.75(Y-T) - 200r
Ip = 200 - 500r
G = 250, T = 200, NX = 50
r = 5.75%

Answer the following questions using the above information. Show workings.
a) Caluclate autonmous aggregate demand.
b) Calculate the short-run output.
c) Calculate the multiplier.
d) If Y* is 2500 what is the amount of the gap, and what type of output gap is it?
e) What would the interest rate have to be to eliminate the output gap?

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Calculate autonomous aggregate demand / short-run output / multiplier

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a) calculate autonomous aggregate demand
<br>C = 350 + 0.75(Y-T) - 200*5.75% =350 + 0.75(Y-200) - 11.5
<br>C = 350 + 0.75(Y-T) - 200r =350 + 0.75Y-150 - 200r
<br>C = 188.5 + 0.75Y
<br>And I = 200 - 500r =200 - 500*5.75%= 171.25
<br>
<br>autonomous aggregate demand is
<br>AD=C+I+G+NX=188.5 + 0.75Y+171.25+250+50= 659.75 + 0.75Y
<br>then ...

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