Question

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 the Fed would like to stabilize the economy. Show how large of a policy they would conduct.

o Compare the magnitudes of the Government’s policies if they use only a change in expenditure, only a change in taxes, or only a balanced budget policy

Answer 1