6) Consider the following IS-LM model:C = 200+ 0.25YDI = 150+ 0.25Y -1000iG = 250T = 200M= 2Y - 8,000iM= 1,600Pa. Derive the IS relation.b. Derive the LM relation.c. Solve for the equilibrium real output.d. Solve for the equilibrium interest rate.e. Solve for the equilibrium values of C and I and verify the value you obtained for Y byadding up C, I, and G.M1,840f. Now suppose that the money supply increases to PSolve for Y, i, C, and I,and describe in words the effects of an expansionary monetary policy.MPg. Setequal to its initial value of 1,600. Now suppose that government spendingincreases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, andC.

The IS-LM model basically refers to a Keynesian macroeconomic model that illustrates how the market…

6) Consider the following IS-LM model: C = 200 +0.25YD I = 150+ 0.25Y -1000i G = 250 T = 200 M - 8,000i P M = 1,600 P a. Derive the IS relation. b. Derive the LM relation. c. Solve for the equilibrium real output. d. Solve for the equilibrium interest rate. e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by adding up C, I, and G. = = 2Y -

6) Consider the following IS-LM model: C = 200 +0.25YD I = 150+ 0.25Y -1000i G = 250 T = 200 M - 8,000i P M = 1,600 P a. Derive the IS relation. b. Derive the LM relation. c. Solve for the equilibrium real output. d. Solve for the equilibrium interest rate. e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by adding up C, I, and G. = = 2Y -

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

6) Consider the following IS-LM model:
C = 200+ 0.25YD
I = 150+ 0.25Y -1000i
G = 250
T = 200
M
= 2Y - 8,000i
M
= 1,600
P
a. Derive the IS relation.
b. Derive the LM relation.
c. Solve for the equilibrium real output.
d. Solve for the equilibrium interest rate.
e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by
adding up C, I, and G.
M
1,840
f. Now suppose that the money supply increases to P
Solve for Y, i, C, and I,
and describe in words the effects of an expansionary monetary policy.
M
P
g. Set
equal to its initial value of 1,600. Now suppose that government spending
increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, and
C.

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