Your homeworks should include your full name and BE STAPLED. No binders necessary. Just legible writing and show all of your work. Do not skip steps.
Part I. Exercises to solidify your understanding of goods market analysis. Write out your responses (you can type your answers, using Words equation editor), or by hand, but handwriting must be legible for credit. You are welcome to consult your groups and work on these together. Each person should hand in their own work, however.
1. Suppose the economy of Macro Land is represented by the following equations:
Z = C+I+G
C = 400+0.5*YD
T = 400
I = 200
YD = Y T
G = 600
What will be the level of demand if Y=0? C. Calculate the level of demand for the following levels of income: Y=1800, Y=2000, Y=2200, and Y=2400. Is the economy at equilibrium at any of these levels of income? Explain.D. When Y=1600, compare the levels of demand and income. How will firms respond to this situation? Briefly explain. Why Y=2400, compare the levels of income and demand. How will firms respond to this situation?
2. Suppose the economy of Paraguay is represented by the following equations:
C=300 + .5*YD
YD = Y-T
A. Calculate the equilibrium level of output.B. Using the Z-Y graph, illustrate the equilibrium level of output for this economy. C. Now assume consumer confidence increases, causing an increase in autonomous consumption from 300 to 400. What is the new equilibrium output? How much does income change as a result of the increase in autonomous consumption? Use calculus to answer this! What is the multiplier for this economy?
D. Graphically illustrate the effects of the change in autonomous consumption on the Z-Y graph.
3. Repeat question 2. But this time assume that MPC = 0.8 Describe the effect of this change on slope of the ZZ function and the size of the multiplier.
4. Suppose the Greek economy is represented by the following equations:
Z = C+I+G
C = 400+ 0.8*YD
T = 600
I = 300
YD = Y T
G = 800
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