Question

Assume the following equations for the goods and money market of an economy:

C = 250 + .8(Y-T)

I = 100 - 50r

T = G = 100.

Ms = 200

Md = 0.2Y – 100r

a) Derive the LM curve from the Md and Ms equations given above. Is this upward or downward sloping? The LM curve is written as Y = __ +/-__r.

b) Using the equation of the original IS curve and the LM curve in part (a) find the equilibrium levels of Y, r, M, C, S, I, G and T.

c) Using the LM curve in part (a) and the IS curve when T falls to 50 and everything else remains the same, find the equilibrium levels of Y, r, M, C, S, I, G and T

d) Explain the adjustment process from the old to the new equilibrium when (1) at the same r, you have a different Y, and (2) at the same Y, you have a different r. You might find it helpful to draw IS and LM curves for both equilibria first. Use numbers as much as possible.

Answer #1

Assume the following model of the economy, with the price level
fixed at 1.0:
C = 0.6(Y – T)
T = 40
I = 120 – 30r
G = 40
Y = C + I + G
Ms/P = Md/P = 2Y – 50r
Ms = 280
Write a numerical formula for the IS curve, showing Y as a
function of r alone. (Hint: Substitute out C, I, G, and T.)
Write a numerical formula for the LM curve, showing...

1. You are given the following equations for the real and
monetary sectors of a specific economy;
Real Sector Equations: C = 10,000 + 0.8 (Y – T); I = 20,000 –
6000 r; G = 29,000; T = 5,000 + 0.1 Y X = 10,000; M = 5,000 + 0.1
Y.
Monetary Sector Equations: Ms = 75,000; Md = 0.5 Y – 7,000 r; Yp
= 200,000.
Here, C = Consumption; Y = GDP = Income; T = Taxes;...

Assume the following model of the economy, with the price level
fixed at 1.0:
C = 0.8(Y – T)
T = 1,000
I = 800 – 20r
G = 1,000
Y = C + I + G
Ms/P =
Md/P = 0.4Y –
40r
Ms = 1,200
a. Write a numerical formula for the IS curve, showing
Y as a function of r alone.
b. Write a numerical formula for the LM curve, showing
Y as a function of r...

Assume the following model of the economy, with the price level
fixed at 1.0:
C = 0.8(Y – T)
T = 1,000
I = 800 – 20r
G = 1,000
Y = C + I + G
Ms/P =
Md/P = 0.4Y –
40r
Ms = 1,200
A. Write a numerical formula for the IS curve, showing
Y as a function of r alone. (Hint:
Substitute out C, I, G, and
T.)
B. Write a numerical formula for the LM...

C= 0.8(1-t)Y,r=0.25,I=900-50r,G=900,L=0.25Y-62.5r and
m/p=500 (money market equilibrium)r=interest rate
a) what is the equation that describes the IS curve
b) define IS curve
c) define LM curve
d) calculate equilibrium levels of income Y and interest rate r

Consider the following short-run, open economy model of the
economy.
Goods Market
C = 100 + 0.9(Y − T) I = 50 − 7.5r; NX = −50 G = 200; T =
100
Money Market
M = 4,000 P = 10 L(r, Y) = Y − 350r
a. (4 pts) Derive the IS and LM equations and put them on a
graph with the real interest rate (r) on the vertical axis and real
GDP (Y) on the horizontal axis....

Consider an economy that is described by the following
equations: C^d= 300+0.75(Y-T)-300r T= 100+0.2Y I^d= 200-200r
L=0.5Y-500i Y=2500; G=600; M=133,200; Pi^e=0.05. (Pi being the
actual greek pi letter sign). Please solve part D and E
(a) obtain the equation of the IS curve
(b) obtain the equation of the LM curve for a general price
level, P
(c) assume that the economy is initially in a long-run (or
general) equilibrium (i.e. Y=Y). Solve for the real interest rate
r, and...

IS-LM Model (Closed Economy)
The following equations describe a small open economy.
[Figures are in millions of dollars; interest rate (i) is in
percent]. Assume that the price level is fixed.
Goods Market
Money
Market
C = 250 +
0.8YD
L = 0.25Y – 62.5i
YD = Y + TR –
T
Ms/P = 250
T = 100 + 0.25Y
I = 300 – 50i
G = 350; TR = 150
Goods market equilibrium condition: Y = C + I...

2. Assume that the equilibrium in the
money market may be described as M/P =
0.5Y – 100r, and M/P equals
800. this is one question unfortunately.
Write the LM curve two ways, expressing Y as
a function of r and r as a function of
Y.
What is the slope of the LM curve?
If real money balance M/P increases to 1200,
what is a new LM curve?
Graphically illustrate LM curve from part
a and new LM curve...

8) Goods Market: Asset Market:
C=70+2/3(Y-T) MS=245
I=100-400r MD=1/2(Y)-100r
G=50
T=50
o What are the IS and LM equations?
o Calculate and show the equilibrium output and interest
rates?
o Considering a Keynesian Model, show graphically what happens
to P, Y, and r in the SR when the there is an increased risk of the
stock market changing the Money Demand by 25 regardless of Y or
r.
o What is the short run Y and r?
o Suppose that...

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