Monday
July 28, 2014

Homework Help: Econ

Posted by Bo on Monday, July 21, 2008 at 6:56pm.

Need help on this question, I tried the ones i know.

a The consumption function is C = 1.5 + 0.75(Y-T). What is the marginal propensity to consume,
MPC? What is the marginal propensity to save, MPS?
ans: MPC=0.75 and MPS=1-MPC=0.25 correct?

b The trade balance is TB = 5(1-[1/E])-0.25(Y-8).What is the marginal propensity to consume foreign goods,MPCF ? What is the marginal propensity to consume home goods, MPCH?

c The investment function is I=2-10i. What is investment when the interest rate i is equal to 0.10=10%?
ans: I=2-10(0.1)=1

d Assume government spending is G. Add up the four components of demand and write down the expression for D.

e Assume forex market equilibrium is given by i = ([1/E]-1)+0.10 where the two foreign return terms on the right are expected depreciation and the foreign interest rate. What is the foreign interest rate?
What is the expected future exchange rate?

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