Chapter 11: Problem 406

If members of the economy wish to hold money balances equal to 5 weeks of expenditure, and all income is spent, what will be the desired level of money balances when aggregate income is $\$ 1,600$ billion per annum?

Short Answer

Expert verified

The desired level of money balances when aggregate income is $\$ 1,600$ billion per annum and members of the economy wish to hold money balances equal to 5 weeks of expenditure is approximately $\$ 153.85$ billion.

Step by step solution

Find Weekly Income

First, we need to find the weekly income. Since aggregate income is given per annum, we can divide the aggregate income by the total number of weeks in a year (52) to get the weekly income. The formula is as follows: Weekly Income = (Aggregate Income) / 52

Calculate Desired Money Balances

Next, we need to calculate the desired level of money balances, which is equal to 5 weeks of expenditure. Since we already found the weekly income and we know all income is spent, the weekly expenditure is equal to the weekly income. To find the desired money balances, we will multiply the weekly expenditure by 5. The formula is as follows: Desired Money Balances = Weekly Expenditure * 5 Now, let's proceed with the calculations.

Calculate Weekly Income

Find the weekly income by dividing the aggregate income of $\$ 1,600$ billion by the total number of weeks in a year: Weekly Income = ($1,600$ billion) / 52 Weekly Income ≈ $30.77$ billion

Calculate Desired Money Balances

Find the desired money balances by multiplying the weekly expenditure, which is equal to the weekly income, by the desired number of weeks (5 weeks): Desired Money Balances = $30.77$ billion * 5 Desired Money Balances ≈ $153.85$ billion Therefore, the desired level of money balances when aggregate income is $\$ 1,600$ billion per annum and members of the economy wish to hold money balances equal to 5 weeks of expenditure is approximately $\$ 153.85$ billion.

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If members of the economy wish to hold money balances equal to 5 weeks of expenditure, and all income is spent, what will be the desired level of money balances when aggregate income is \(\$ 1,600\) billion per annum?

Short Answer

Step by step solution

Find Weekly Income

Calculate Desired Money Balances

Calculate Weekly Income

Calculate Desired Money Balances

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