Chapter 1. Linear models: applications

The demand and supply functions of a good are given by:

P = −3Q_d + 375

P = 2Q_s + 75

Determine the equilibrium price?

• 195

• 60

• 300

• 75

• 135

Consider the macroeconomic model:

G = 20 (government expenditure)

I = 90 (planned investment)

C = 0.8Y + 20 (consumption)

Y = C + G + I (equilibrium)

Work out the change in the value of national income Y when government expenditure reduce by 2 units?

• -26

• -20

• 8

• -10

• 36

If the supply and demand functions are given by

P = aQ_s + b

P = cQ_d + d

what conditions must be imposed on the parameters, a, b, c and d for these equations to be economically meaningful and for the equilibrium to exist?

• a > 0, b > 0, c < 0, d < 0, d < b

• a < 0, b < 0, c > 0, d > 0, d < b

• a < 0, b > 0, c > 0, d < 0, d < b

• a > 0, b > 0, c < 0, d > 0, d > b

Describe what happens to a good when the price of a complementary good decreases?

• The equilibrium price increases, the equilibrium quantity decreases and the demand curve shifts left.

• The equilibrium price and quantity both decrease and the demand curve shifts left.

• The equilibrium price and quantity both increase and the demand curve shifts right.

• The equilibrium price decreases, the equilibrium quantity increases and the demand curve shifts left.

• The equilibrium price increases, the equilibrium quantity decreases and the demand curve shifts right.

In a simple macroeconomic model, the value of national income Y may be found by solving the system:

G = 350 (government expenditure)

T = 50 (taxation)

I = 100 (planned investment)

C = 0.75Y_d + 150 (consumption)

where disposable income Y_d = Y − T.

Calculate the equilibrium level of national income?

The demand and supply functions for two interdependent commodities are given by:

Q_D1 = 120 − 2P₁ + P₂; Q_S1= −7 + 7P₁

Q_D2= 168 + 3P₁ − 7P₂; Q_S2 = −3 + 20P₂

These goods are complementary or substitutable?

• complementary

• substitutable

The demand and supply functions for two interdependent commodities are given by:

Q_D1 = 120 − 2P₁ + P₂; Q_S1= −7 + 7P₁

Q_D2= 168 + 3P₁ − 7P₂; Q_S2 = −3 + 20P₂

Determine the equilibrium price for good 2?

• 15

• 8

• 98

• 157

Determine the equilibrium income Y, given the following information about the commodity market:

C = 0.6Y + 60; I = −40r + 1300

where C and I denote consumption and planned investment, respectively, and the following information about the money market:

M_S = 600; L₁ = 0.2Y; L₂ = −30r + 40

where M_S, L₁ and L₂ denote money supply, transaction-precautionary demand for money and speculative demand for money, respectively.

Consider the macroeconomic model:

G = 40 (government expenditure)

I = 90 (planned investment)

C = 0.8Y + 20 (consumption)

Y = C + G + I (equilibrium)

Work out the change in the value of national income Y when government expenditure rises by 2 units?

• -26

• 10

• 8

• -10

• 36

Determine the interest r, given the following information about the commodity market:

C = 0.6Y + 60; I = −40r + 1300

where C and I denote consumption and planned investment, respectively, and the following information about the money market:

M_S = 600; L₁ = 0.2Y; L₂ = −30r + 40

where M_S, L₁ and L₂ denote money supply, transaction-precautionary demand for money and speculative demand for money, respectively.