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autonomous aggregate demand / short-run output / multiplier

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?

Solution Preview

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 ...

Solution Summary

Calculate autonomous aggregate demand / short-run output / multiplier

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