Question

Consider the following IS-LM model:

C=400+0.25Y_{D}

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 and describe in words the effects of an expansionary monetary policy.

7-Set M/P equal to its initial value of 1600. Now suppose that government spending increases to 840. Summarize the effect an expansionary fiscal policy on Y, r and C.

Answer #1

4.Consider the following IS-LM model:
C = 200+0.5 YD
I = 150+0.25Y-1000i
G=250
T=200
(M/P)d = 2Y-8000i
M/P=1600
a. Derive the IS relation
b. Derive the LM relation
c. Solve for the equilibrium real output.
d. Solve for the equilibrium interest rate.

C = 100 + 0.75YD
I = 225 + 0.15Y - 600i
G = 450
T = 100
a. Derive the IS relation.
b. The central bank sets an interest rate of 75% (i = 0.75). How is
that decision represented in the equations?
c. What is the level of real money supply when the interest rate is
75%? Use the expression:
?? = 3 ? − 9 9 0 0 ?
d. Solve for the equilibrium values of C...

Assume the following IS-LM model: Y = C + I + G C = .8(1-t)Y t
=0.25 I = 900 - 50i G = 800 Md = 0.25Y -62.5i Ms =500.
(a)What will happen to the level of Y if G expands by 187.50?
(b) What will happen to the composition of GDP? Explain and derive
the numbers. (c). Was Investment crowded out? If so by how
much.

C= 0.8(1-t)Y,r=0.25,I=900-50r,G=900,L=0.25Y-62.5r and
m/p=500 (money market equilibrium)r=interest rate
a) what is the equation that describes the IS curve
b) define IS curve
c) define LM curve
d) calculate equilibrium levels of income Y and interest rate r

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...

Problem 2. Consider the following example of
the IS-LM model:
C = 340 + 0.5(Y–T)
I = 400 – 1500(r + x) G = 150 T = 100 x=0.02
r = 0.04 ?e = 0.02
(1) Derive the IS equation.
(2) Find the equilibrium value of Y.
(3) Write down the zero lower bound constraint. Does the real
interest rate of r=0.04 satisfy the constraint?
(4) Suppose that the risk premium x has increased to x=0.09.
(a) Derive the new...

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...

ECO308W Intermediate Macroeconomics Name:
Dr. Schmidt Spring 2019
Quiz #4: IS-LM Equilibrium
The US Macro economy is represented by the following
equations:
Financial Sector:
L = Md/P = 0.5Y – 50i Ms/P = 2000
Real Sector:
AD = C+I+G C = 600 + 0.8YD G = 800 I = 400 –
40i TA = 0.25Y
TR = 250 YD = Y–TA+TR
Set up the IS relationship (2 points)
Step 1, convert C to a function of Y; step 2, set...

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 the following IS-LM model:
(1 - b)Y + i1r - a - G = i0 - bT (1)
c1Y = Ms + c2r (2)
where Y and r are the endogenous variables. Solve for Y and r using
matrix algebra.
How are these equilibrium values affected by increases in Ms?
Increases in T? (i.e.
nd the comparative statics)

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