In an economy where the consumption function is: C = 200 + 75 (Y - T), the investment function
is: I = 200 - 25i, and government spending and taxes rise both to 100 (G = 100 and T = 100), has determined that the IS curve is given by the expression:
Y = 1700 - 100i
In turn, in this economy the demand for money is given by (M\P)^d = Y - 100i, supply
equals monetary M^s = 1000 and the price level is P = 2. Consequently, it has
determined that the LM curve in this economy is given by:
Y = 500 + 100i
a) Find the interest rate and the level of equilibrium output.
b) Suppose that government spending goes to G = 100 to G = 150. How to change the IS curve?
What happens to the LM curve? What is the new equilibrium level for the interest rate
and the product? Discuss.
c) Assume now that the money supply goes from M^s = 1000 to M^s =1200. How to change theLM curve? What happens to the IS curve? What is the new equilibrium level for the rate of
interest and the product? Discuss. (Note: in this case, government spending is held in
initial level G = 100, and the price level continues to be P = 2.)
Thanks!!!!!... 5 stars !!
is: I = 200 - 25i, and government spending and taxes rise both to 100 (G = 100 and T = 100), has determined that the IS curve is given by the expression:
Y = 1700 - 100i
In turn, in this economy the demand for money is given by (M\P)^d = Y - 100i, supply
equals monetary M^s = 1000 and the price level is P = 2. Consequently, it has
determined that the LM curve in this economy is given by:
Y = 500 + 100i
a) Find the interest rate and the level of equilibrium output.
b) Suppose that government spending goes to G = 100 to G = 150. How to change the IS curve?
What happens to the LM curve? What is the new equilibrium level for the interest rate
and the product? Discuss.
c) Assume now that the money supply goes from M^s = 1000 to M^s =1200. How to change theLM curve? What happens to the IS curve? What is the new equilibrium level for the rate of
interest and the product? Discuss. (Note: in this case, government spending is held in
initial level G = 100, and the price level continues to be P = 2.)
Thanks!!!!!... 5 stars !!