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...

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 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 IS-LM model:
C=400+0.25YD
I=300+0.25Y-1500r
G=600
T=400
(M/P)D=2Y-1200r
(M/P)=3000
1-Derive the IS relation with Y on the left-hand side.
2-Derive the LM relation with r on the left-hand side.
3-Solve for equilibrium real output.
4-Solve for the equilibrium interest rate.
5-Solve for the equilibrium values of C, and I, and verify the
value you obtained for Y adding C, I and G.
6-Now suppose that the money supply increases to M/P=4320. Solve
for Y, r, C and I...

Given a closed economy in the long run (classical model):
Y=F(K,L)
Y=C+I+G C=c(Y-T)
I=I(r)
G and T set by Government policy.
For the following changes in the economy, show the impact of the
change on the loanable fund market. Use a fully labeled graph.
Also state the impact of the change on the following variables:
Y, C, G, S, I and r.
1) A decrease in Government Spending.
2) A decrease in Taxes.
3) An increase in Investment demand.

Consider an economy described by the following
equations:
Y=C+I+G+NX,
Y=8,000
G=2,500
T=2,000
C=500 +
0.75(Y−T)
I=900−50r
NX=1,500−250ϵ
r=r∗=8.
a.
In this economy, solve for private saving, public saving, national
saving, investment, the trade balance, and the equilibrium exchange
rate.
b.
Suppose now that G is cut to 2,000. Solve for private saving,
public saving, national saving, investment, the trade balance, and
the equilibrium exchange rate. Explain what you find.
c.
Now suppose that the world interest rate falls from 8...

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