You are given the following information about a closed economy economy: C = 100+ 0.8(y-t) 500 - 50r 8 = 400 t = 400 M/P = 0.2y + 500 - 25r The price level is fixed at 1. The money supply is 520. (c= consumer expenditure; i-investment; g= government spending; t-taxes; r= interest rate; Md=demand for money; P= price level; y= real GDP) 1. Calculate the equilibrium levels of interest rate and real GDP. (12 points) 2. Calculate the equilibrium level of consumer expenditure. (5 points) 3. Calculate the equilibrium level of investment. (5 points) 4. The central bank increases the money supply by one unit. (a) Calculate the change in the equilibrium level of aggregate expenditure. (3 points) (b) What are the changes in the equilibrium levels of interest rate and investment? (4 points) (c) What is the change in the equilibrium level of consumer expenditure? (3 points) (d) What is the change in the government's budget balance?
