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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Let the IS equation be
Y =
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
1
Y = + -i
K'
g
1-b
i
where k and I are income and interest sensitivity of money demand, respectively, and
Mo 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.
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