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The model of the macroeconomy provides a theory behind the determination of the two important...

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Accounting

imageThe model of the macroeconomy provides a theory behind the determination of the two important macroeconomic variables: GDP and inflation. The exercise below is related to aggregate demand (AD) and aggregate supply (AS) curves that make up the model of the macroeconomy.

Consider an economy with the following parameter values: C=7,I=0,G=5,r=1,mpc=0.8,d=0.3,=0.5,e=2,=0.5,Yp=50,=0 a. Write the AD and AS equations for the given parameter values. b. Find the equilibrium values for output and inflation in the economy. c. Plot the AD and AS curves and label the equilibrium. d. Now, suppose =2. Find the new equilibrium output and inflation. Depict the new equilibrium in the graph you plotted in (c). Consider an economy with the following parameter values: C=7,I=0,G=5,r=1,mpc=0.8,d=0.3,=0.5,e=2,=0.5,Yp=50,=0 a. Write the AD and AS equations for the given parameter values. b. Find the equilibrium values for output and inflation in the economy. c. Plot the AD and AS curves and label the equilibrium. d. Now, suppose =2. Find the new equilibrium output and inflation. Depict the new equilibrium in the graph you plotted in (c)

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