1. IS-LM-AD Suppose the economy of Canada is governed by the following consumption function, investment function, and fixed values of government expenditure and taxes C =300+0.6(Y-T), I =700-80r, G =500, T =500. Further, suppose that the money demand function, money supply, and price level are given by ()- =Y- 200r, P М - 3000, P =2. (a) Compute the IS and LM curves, and plot these curves for interest rates ranging from 0% to 15%. Find the equilibrium levels of Y and r. (b) Suppose that the government increases expenditures to G= 700. What are the new equilibrium values of Y and r. What is the government expenditure multiplier? (c) For the initial levels of government expenditure (G = 500), compute the aggregate demand curve. What is the level of aggregate demand when the price level is equal %3D to 4?

1. IS-LM-AD Suppose the economy of Canada is governed by the following consumption function, investment function, and fixed values of government expenditure and taxes C =300+0.6(Y-T), I =700-80r, G =500, T =500. Further, suppose that the money demand function, money supply, and price level are given by ()- =Y- 200r, P М - 3000, P =2. (a) Compute the IS and LM curves, and plot these curves for interest rates ranging from 0% to 15%. Find the equilibrium levels of Y and r. (b) Suppose that the government increases expenditures to G= 700. What are the new equilibrium values of Y and r. What is the government expenditure multiplier? (c) For the initial levels of government expenditure (G = 500), compute the aggregate demand curve. What is the level of aggregate demand when the price level is equal %3D to 4?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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