**Economic Analysis Example****Problem Statement:**Suppose an economy is given by the following equations:\[ C = 150 + 0.25Y_d \]\[ I = 150 + 0.25Y - 1000i \]\[ G = 250 \]\[ T = 200 \]\[ \frac{M}{P} = 1400 \]\[ Y = L(i) = 2Y - 8000i \]\[ Y_n \text{ (Natural level of output)} = 1200\]Using the above information, answer the following:**(a) Derive the IS and LM equations.****(b) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom?****Analysis:**For educational purposes, students should use the given formulas to derive the IS-LM model, analyzing the equilibrium points by setting consumption (C), investment (I), government spending (G), taxes (T), money supply over price level ($ \frac{M}{P} $), and the liquidity preference money supply (L(i)) equations. Additionally, comparing the natural output level ($ Y_n $) provides insight into the current economic state, determining whether the economy is in recession or boom.

Equilibrium output is produced where IS curve intersects LM curve, that is both goods market and…

2. Suppose an economy is given by the following equations: C = 150 +0.25Yd I= 150 +0.25Y - 1000i G = 250 T = 200 (M/P) = 1400 Y L(i)=2Y - 8000i Yn (Natural level of output) = 1200 Using the above information, answer the following. (a) (5) Derive the IS and LM equations. (b) (5) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom?

2. Suppose an economy is given by the following equations: C = 150 +0.25Yd I= 150 +0.25Y - 1000i G = 250 T = 200 (M/P) = 1400 Y L(i)=2Y - 8000i Yn (Natural level of output) = 1200 Using the above information, answer the following. (a) (5) Derive the IS and LM equations. (b) (5) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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