PART C: Long Questions Long Question 1: (20 points) Consider the short run mode] of Chapters 11 and 12. The national income identity is given by...
I DONT UNDERSTAND WHATS HAPPENING IN PART C. I provided parts a and b for reference.
PART C: Long Questions Long Question 1: (20 points) Consider the short run mode] of Chapters 11 and 12. The national income identity is given by Y;=C¢+Ig+Gg+EX;-IM¢. (3) where Y; is real actual output, C; is consumptiOn, I; is investment, G; is governmentspending, EX, is exports, and I M; is imports (all in period :3). Assume that the “demand" variables are given by: Cl/fi = 5c + 5217:. Gt/f/t = 59:Ext/F; = 5.”,IMt/f’t = aim: It/fi = ai_b(R¢_7—')i where fie, Emfimfiim, 6.357;, and 5 are given positive parameters. Moreover, 3"; representspotential output, Y; is shortorun output, R; is the real interest rate, and F is the marginalproduct of capital or just the long run interest rate. (4)(5)(5)(7)(8) a) Combine equations (4)-(8) with (3) to obtain the IS curve. This curve should haveshort run output on the left-hand side and the real interest rate on the right-hand side.3 (4 Points} you w‘?! Firs:
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