Show full answers and steps to this exercise 3. Let the IS equation beY =A1-bwhere 1 -b is the marginal propensity to save, g is the investment sensitivity to inter-est rates, and A is an aggregate of exogenous variables. Let the LM equation beMok1Y = + -iK'g1-biwhere k and I are income and interest sensitivity of money demand, respectively, andMo is real money balances.If b = 0.7, g = 100, A = 252, k = 0.25, 1= 200, and Mo = 176, then(a) Write the IS-LM system in matrix form.(b) Solve for Y and i by matrix inversion.

IS curve is the goods market equilibrium and the LM curve is the money market equilibrium.For IS…

3. Let the IS equation be A 1-b where 1 – b is the marginal propensity to save, g is the investment sensitivity to inter- est rates, and A is an aggregate of exogenous variables. Let the LM equation be Mo k where k and I are income and interest sensitivity of money demand, respectively, and Mo is real money balances. Y = Y = +/- 1 k g 1-b i If b=0.7, g = 100, A = 252, k = 0.25, 1= 200, and Mo = 176, then (a) Write the IS-LM system in matrix form. (b) Solve for Y and i by matrix inversion.

3. Let the IS equation be A 1-b where 1 – b is the marginal propensity to save, g is the investment sensitivity to inter- est rates, and A is an aggregate of exogenous variables. Let the LM equation be Mo k where k and I are income and interest sensitivity of money demand, respectively, and Mo is real money balances. Y = Y = +/- 1 k g 1-b i If b=0.7, g = 100, A = 252, k = 0.25, 1= 200, and Mo = 176, then (a) Write the IS-LM system in matrix form. (b) Solve for Y and i by matrix inversion.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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