Question

Suppose desired consumption and desired investment are

?? = 300 + 0.75(? − ?) − 300?

T = 100 + 0.2Y

?? = 200 − 200?

G is the level of government purchases and G=600

Money demand is

?? ?

= 0.5? − 500(? + ??)

where the expected rate of inflation, ??, is 0.05. The nominal
supply of money M = 133,200.

Suppose the full employment output is 2500 and the price level in
the short run is 120.

1) Find the equation for the IS curve.

2) Find the equation for the LM curve.

3) Find the real interest rate and output level in the short run
equilibrium [Hint: The short run equilibrium is the intersection of
the IS and the LM curve]

4) Find the equation for the aggregate demand curve by using the IS
and LM curve. [Hint: Use the form of the LM curve for an
unspecified value of P. This aggregate demand function is measured
by the solution of (1) and (2).

Answer #1

Consider the following economy (with flexible exchange rate
system):
• Desired consumption: Cd = 300 + 0.5Y − 2000r
• Desired investment: Id = 200 − 3000r
• Government purchases: G = 100
• Net export: NX = 350 − 0.1Y − 0.5e
• Real exchange rate: e = 20 + 1000r
• Full employment: Y ̄ = 900.
• Nominal money stock: M = 4354
• Real money demand: L = 0.5Y − 200r
(a) Find the equations for...

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...

Consider the following economy: Planned consumption: ? = 900 +
0.5(? − ?) − 180? Planned investment: ? = 950 − 180? Real money
demand: ( ? ? ) ? = 0.5? − 180?
a. (2 pts) Suppose ? = 400, ? = 450, and ? = 9,750. Find an
equation for the IS curve.
b. (2 pts) Find an equation for the LM curve.
c. (2 pts) Find an equation for the aggregate demand curve.
Express the AD curve...

Suppose the economy is described by the following equations:
C = 350 + .7(Y – T)
I = 100 + .1Y - 1000i
G = 500; T = 500
Money Supply (M/P)s = 3200
Money Demand (M/P)d = 2Y – 4000i
a.Write an equation for the IS relation.
b.Write an equation for the LM relation.
c.Find the equilibrium levels of Y and i.
d.Write the Aggregate Demand equation for this economy with Y
as a function of P.
e. Suppose...

2) Consider the following Keynesian model of the economy.
Consumption Function: C = 12 + .6 Y d,
Investment Function: I = 25 − 50 r,
Government Spending: G = 20,
Tax Collections: T = 20,
Money Demand Function: L d = 2 Y − 200 r,
Money Supply: M = 360,
Price Level: P = 2.
a) Find an expression for the IS curve and plot it.
b) Find an expression for the LM curve and plot it.
c)...

Assume that the consumption function is given by
Ct = 150 + 0.75(Yt –
T)
I = 250; G = 500; T = 500
(2 point) Write down the planned expenditure as a function of
current output/income (Yt):
PE (Yt+1) =
____________________________________.
(4 points) What is the equilibrium level of income? Show your
work.
(4 points) If G increases to 550, what is the new equilibrium
level of income? Show your work.
Given
Yt+1=Ct+I+G
Ct=50+0.8(Yt-T)
I = 200 – 5r...

Consider the following Keynesian (short-run) model along with
the Classical (long-run) model of the economy.
Labor Supply: Le = 11
Capital Supply: K=11
Production Function:
Y-10K.3(Le).7
Depreciation Rate: &=.1
Consumption Function: C=12+.6Yd
Investment Function: I= 25-50r
Government Spending: G=20
Tax Collections: T=20
Money Demand Function: Ld=
2Y-200r
Money Supply: M=360
Price Level: P=2
Find an expression for the IS curve and plot it.
Find an expression for the LM curve and plot it.
Find the short run equilibrium level of...

Consider the following numerical example of the IS-LM model:
C = 100 + 0.3YD
I = 150 + 0.2Y - 1000i
T = 100
G = 200
i = 0.01
a) What is the equilibrium level out output (Y)?
b) suppose the government increase spending to G=300. What is
the new equilibrium level out output?
c) G = 200. What is the equilibrium supply of money id the
demand for money is given by (M/P)d = 2Y - 4000i?

1. In the short-run IS-LM model with income taxation, taxes are
given by ?=? +??. Suppose that MPC = 0.75 and the marginal tax rate
?=0.2. Then, when ? decreases by 1000, then for any given interest
rate, the IS curve shifts:
Select one:
a. to the left by 1000.
b. to the right by 3000.
c. to the right by 3750
d. to the right by 1875.
2.
Suppose that the adult population in an economy is 28 million,...

5) The economy has an aggregate production function
fN=15N-12N2 , where N is labor
input. Labor supply is given by
NsWP=-5+3WP ,
where W is the money wage and P is the price level. Desired
consumption depends on real income, Y, and can be written as
CdY=10+0.7Y . Given real
interest rate, r, the desired investment is
Idr=30-200r . The real money
demand is characterized by LY,r=10+Y-200r . Government spending, G,
and nominal money stock, M, is given as G=0...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 9 minutes ago

asked 29 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago