Question

1. Consider an economy with the given equations.

- Y=C+I+GY=C+I+G
- C=112+0.6(Y−T)C=112+0.6(Y−T)
- I=120−10rI=120−10r
- (MP)d=Y−15r(MP)d=Y−15r
- G=$35G=$35
- T=$45T=$45
- M=$1200M=$1200
- P=3.0

a. Use the relevant set of equations to derive the IS curve and graph it.

b. What is the equation for the IS curve?

*Y* =

**c.** Use the relevant set of equations to derive
the LM curve.

d. Calculate the equilibrium level of income (*Y*) and
the equilibrium interest rate (*r*).

**Y=**

**r (%)=**

**e.** Use the relevant set of equations to derive
the LM curve. Graph it

Answer #1

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...

3. Using the following information about the current
economy:
C = 130 + 0.80(Y-T) where: C: consumption, Y: output
I = 680 -1200r T: taxes, I: Investment, r: real interest rate
T = 70 G: government
G = 110
(M/P) d = 0.6Y – 960r where: (M/P) d : money demand
Ms = 2364 Ms: money supply
P = 1.0 P: price level
(You must show the steps to derive these answers.)
a. Derive the equation for the IS curve...

Consider an economy with the given equations.
Y = C + I + G + NX
Y=$5500
G=$1100
T=$1200
C=$200+0.60(Y−T)
I=1100−50r
NX=1270−1270?
r=r*=5
b. Suppose now that G rises to $1400. Solve for private saving,
public saving, national saving, investment, the trade balance, and
the equilibrium exchange rate.
Public savings = $_____
National savings = $____
Investment = $_____
Net exports (trade balance) = $____
Exchange rate _____
c. Suppose that the world interest rate rises
from 5 to 12...

Given an economy described by the following set of
equations.
Y = C(Y - T) + I(r) + G
C = 200 + 0.80(Y - T)
I = 300 - 2r
G = 400
T = 200
(M/P)d = 0.80Y - 8r
Ms = 5,600
Price-level = P = 2
What is the equilibrium level of GDP?

Given an economy described by the following set of
equations.
Y = C(Y - T) + I(r) + G
C = 200 + 0.80(Y - T)
I = 300 - 2r
G = 400
T = 200
(M/P)d = 0.80Y - 8r
Ms = 5,600
Price-level = P = 2
What is the equilibrium level of investment?

Given an economy described by the following set of
equations.
Y = C(Y - T) + I(r) + G
C = 200 + 0.80(Y - T)
I = 300 - 2r
G = 400
T = 200
(M/P)d = 0.80Y - 8r
Ms = 5,600
Price-level = P = 2
What is the equilibrium level of consumption?

Given an economy described by the following set of
equations.
Y = C(Y - T) + I(r) + G
C = 200 + 0.80(Y - T)
I = 300 - 2r
G = 400
T = 200
(M/P)d = 0.80Y - 8r
Ms = 5,600
Price-level = P = 2
What is the equilibrium level of consumption?

Consider the economy of Wiknam. The consumption function is
given by C = 250 + 0.6 ( Y – T ) . The investment function is I =
100 – 20 r . The money demand function is ( M P ) d = Y – 20 r .
Round answers to two places after the decimal where necessary.
a. Government purchases and taxes are both 100. In the
accompanying diagram, graph the IS curve for r ranging from 0...

Consider the following model:
C=20+0.5(Y-T)
I=20-10r
T=0
G=50
QUESTIONS:
d) Suppose now that there is a change
in public spending so that G=70. What would be the effect on the IS
curve? Show your results in a graph.
e) Suppose now that the change in d)
is neutral to deficit so that G=70 and T=20. What would be the
effect on the IS curve? Show your results in a graph.
f) Suppose now that interest rate
decreases to 0.05. Calculate...

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...

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