Question

    Central Bank of Kaishala directly controls the money supply, with real money balances set at #1600. Government expenditures is #250 and taxes are #200. Consumption, investment and the demand for real money balances are

    C = 200 + 0.25*Yd (Yd = Y – T)

    I = 150 + 0.25*Y – 1000*i

    (M/P)d = 2*Y – 8000*i

    Here # is the currency of Kaishala

    The Government of Kaishala decides to increase the real balances to #1840. What is the change in consumption and investment after the increase?

    A C = #50 I = #20 Correct Answer Incorrect Answer
    B C = #410 I = #380 Correct Answer Incorrect Answer
    C C = #30 I = #10 Correct Answer Incorrect Answer
    D C = #10 I = #30 Correct Answer Incorrect Answer

    Solution

        

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