Question

Assume Md = 0.2Y - 200r a). Write the equation for the LM curve in the...

Assume Md = 0.2Y - 200r

a). Write the equation for the LM curve in the economy if Ms = 500. Is this upward or downward sloping?

b). Now assume that the money supply rises to 1500 and everything else remains the same. Write the new equation for the LM curve in the economy. How has the LM curve changed?

c). Draw graphs for the money market (Md and Ms ) and the LM curves for both (a) and (b). Make sure all intercepts and points for all curves are labeled. You can draw the graphs and mark all the points by assuming Y = 10,000.

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