2. Consider the following economy: C=2000+0.5(Y-T)-100r I=1000-150r T=400 G=700 L= 0.5Y-150r Ms=3000 P=2 Expected inflation = 0. Government Budget = T-G. SHOW WORK for all calculations. a) Solve for the IS curve and the LM curve. b) Solve for the equilibrium values of r and Y. [hint: Y is a whole number; note: do not multiply the solution of r by 100; simply plug it directly as is into the equations to solve for Y] c) Use the results from c) to solve for equilibrium C, I, and the Government Budget. d) Now suppose that the full-potential level of output is equal to 5000 (i.e. Y = 5000). Draw the IS- LM diagram that correctly shows the IS, LM, and FE line give the information you have calculated and the full-potential level of output. [only use the info in parts a) to d) to draw the diagram]. Now consider an expansionary monetary policy. e) Now suppose that Ms increases to 3800. What is the impact on the equilibrium r, Y, C, and I. Calculate. f) Discuss the impact of a rise in M³ on the economy, providing economic reasoning. No figure. Elaborate on the adjustment to equilibrium providing intuition. g) Lastly, if the full-employment level of output (Y) = 5000, did the rise in M³ (from 3000 to 3800) bring the economy back to full-employment? Briefly discuss.
2. Consider the following economy: C=2000+0.5(Y-T)-100r I=1000-150r T=400 G=700 L= 0.5Y-150r Ms=3000 P=2 Expected inflation = 0. Government Budget = T-G. SHOW WORK for all calculations. a) Solve for the IS curve and the LM curve. b) Solve for the equilibrium values of r and Y. [hint: Y is a whole number; note: do not multiply the solution of r by 100; simply plug it directly as is into the equations to solve for Y] c) Use the results from c) to solve for equilibrium C, I, and the Government Budget. d) Now suppose that the full-potential level of output is equal to 5000 (i.e. Y = 5000). Draw the IS- LM diagram that correctly shows the IS, LM, and FE line give the information you have calculated and the full-potential level of output. [only use the info in parts a) to d) to draw the diagram]. Now consider an expansionary monetary policy. e) Now suppose that Ms increases to 3800. What is the impact on the equilibrium r, Y, C, and I. Calculate. f) Discuss the impact of a rise in M³ on the economy, providing economic reasoning. No figure. Elaborate on the adjustment to equilibrium providing intuition. g) Lastly, if the full-employment level of output (Y) = 5000, did the rise in M³ (from 3000 to 3800) bring the economy back to full-employment? Briefly discuss.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
not use ai please don't
![2.
Consider the following economy:
C=2000+0.5(Y-T)-100r
I=1000-150r
T=400
G=700
L= 0.5Y-150r
Ms=3000
P=2
Expected inflation = 0.
Government Budget = T-G.
SHOW WORK for all calculations.
a) Solve for the IS curve and the LM curve.
b) Solve for the equilibrium values of r and Y. [hint: Y is a whole number; note: do not multiply the
solution of r by 100; simply plug it directly as is into the equations to solve for Y]
c) Use the results from c) to solve for equilibrium C, I, and the Government Budget.
d) Now suppose that the full-potential level of output is equal to 5000 (i.e. Y = 5000). Draw the IS-
LM diagram that correctly shows the IS, LM, and FE line give the information you have
calculated and the full-potential level of output. [only use the info in parts a) to d) to draw the
diagram].
Now consider an expansionary monetary policy.
e) Now suppose that Ms increases to 3800. What is the impact on the equilibrium r, Y, C, and I.
Calculate.
f) Discuss the impact of a rise in M³ on the economy, providing economic reasoning. No figure.
Elaborate on the adjustment to equilibrium providing intuition.
g) Lastly, if the full-employment level of output (Y) = 5000, did the rise in M³ (from 3000 to 3800)
bring the economy back to full-employment? Briefly discuss.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdcbd3a52-0553-4d1b-baf6-7514f1523134%2F3c21b3d1-80e6-426a-ae99-9e3ab3de6aa5%2Fbcxlsg7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2.
Consider the following economy:
C=2000+0.5(Y-T)-100r
I=1000-150r
T=400
G=700
L= 0.5Y-150r
Ms=3000
P=2
Expected inflation = 0.
Government Budget = T-G.
SHOW WORK for all calculations.
a) Solve for the IS curve and the LM curve.
b) Solve for the equilibrium values of r and Y. [hint: Y is a whole number; note: do not multiply the
solution of r by 100; simply plug it directly as is into the equations to solve for Y]
c) Use the results from c) to solve for equilibrium C, I, and the Government Budget.
d) Now suppose that the full-potential level of output is equal to 5000 (i.e. Y = 5000). Draw the IS-
LM diagram that correctly shows the IS, LM, and FE line give the information you have
calculated and the full-potential level of output. [only use the info in parts a) to d) to draw the
diagram].
Now consider an expansionary monetary policy.
e) Now suppose that Ms increases to 3800. What is the impact on the equilibrium r, Y, C, and I.
Calculate.
f) Discuss the impact of a rise in M³ on the economy, providing economic reasoning. No figure.
Elaborate on the adjustment to equilibrium providing intuition.
g) Lastly, if the full-employment level of output (Y) = 5000, did the rise in M³ (from 3000 to 3800)
bring the economy back to full-employment? Briefly discuss.
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