Exercise on topic 3 at home.

Javier Berrocal Guerrero

Macroeconomics.

Exercise on topic 3 at home:

Javier Berrocal Guerrero

Exercise on topic 3 at home. Javier Berrocal Guerrero

The following equations refer to the goods and services markets of an economy in billion €.

C = 100 + 0.6
I = 50
T = 100
G = 250

a) Solve for the goods and services markets equilibrium (find equilibrium output).
Y = C + I + G + (X - M)
Y = 100 + 0’6Yd + 50 + 250
Y - 0’6Y = 100 - 0’6*100 + 250
0’4Y = 290
Y = 290/0’4
Y = 725

b) Find equilibrium disposable income

Yd = Y - T
Yd = 725 - 100
Yd = 625

c) Find equilibrium consumption

C = Co + C1 * Yd
C = 100 +0’6 * (725 - 100)
C = 475

d) Calculate the multiplier and explain shortly (no more than 100 words) how it affects equilibrium
output.

Multiplier = 1 / (1-0’6)
Multiplier = 2’5

Javier Berrocal Guerrero