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...

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

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