Module 6 Accounting Problems Answers

a. Suppose that, as in the previous problem, disposable income is 4,000 in years 1 and 2, but suppose also that, in year 2, consumers expect disposable income to be 4,000 in all future years. What is consumption in year 2 C2 220.94000 3820 b. Suppose that, in year 3, disposable income rises to 5,000 and consumers expect the 5,000 level to remain in all future years. What is consumption in year 3 C3 220.95000 4720 5. Suppose that the consumption function is given by C 270 0.63Y -1,000R rather than by the consumption function in Chapter 8. Add this consumption function to the other four equations of the macro model Y _C I G X M (0.1583 Y- 1,000R)P I 1,000 -2,000R X 525- 0.1Y -500R. Treat the price level as predetermined at 1.0 and let government spending be 1,200 and the money supply be 900. a. Derive an algebraic expression for the IS curve for this model and plot it to scale. equate YCIGNX 270.63Y -1000R 1000-2000R 1200 525 -.1Y -500R (.1583Y -1000R) Y Y 1795 0.3717 Y -2500R 0.6283Y 2500R 1795 is the equation YR017955001480.8510001166.71500852.552000538.42500224.252856.9150 b. Derive the aggregate demand curve and plot it to scale. TO