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(b) Mrs. Pathak is very particular about her consumption of tea. She always takes 50
grams of sugar with 20 grams of ground tea. She has allocated Rs 55 for her spending on
tea and sugar per month. (Assume that she doesn’t offer tea to her guests or anybody else
and she doesn’t consume sugar for any other purpose). Sugar and tea are sold at 2 paisa
per 10 grams and 50 paisa per 10 grams respectively. Determine how much of tea and
sugar she demands per month.
("" i have solved this nd got 2.5 kg of sugar and 1 kg of tea per month ...pls confirm""????)
(c) Consider the IS-LM model with government expenditure and taxation. A change in
the income tax rate changes the equilibrium from (y = 3000, r = 4%) to
(y = 3500, r = 6%), where y, r denote income and rate of interest, respectively. It is
given that a unit increase in y increases demand for real money balance by 0.25 of a
unit. Compute the change in real money demand that results from a 1% increase in the
rate of interest. (Assume that all relationships are linear.)
(i got change in real money demand as 6.25....???)
7. Consider a Simple Keynesian Model without government for an open economy, where
both consumption and import are proportional functions of income (Y ). Suppose that
average propensities to consume and import are 0.8 and 0.3, respectively. The investment
( I ) function and the level of export ( X ) are given by I = 100 + 0.4Y and X = 100.
(i) Compute the aggregate demand function if the maximum possible level
of imports is 450. Can there be an equilibrium for this model?what if import limit is raised to 615?
FOR QUESTIONS OF THIS TYPE I ALWAYS GET CONFUSED....SEE SINCE IMPORT LIMIT IS THERE WE DONT HAVE IMPORT FUNCTION OPERATIONAL SO IN THAT CASE EQUILIBRIUM DOESNT EXIST COZ Y TURNS OUT TO BE NEGATIVE....
WHEN IMPORT LIMIT IS RAISED TO 615 NOW WE HAVE IMPORT FUNCTION OPERATIONAL ND GET INCOME AS 2000 WHICH GIVES IMPORT =600<615...
IS THIS OK??????
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