7) Suppose an economy is given by the following equations: C = 150+ 0.25Yd I= 150 +0.25Y - 1000i G = 250 T = 200 Yd=Y-T (M/P) = 1400 Y L(i)=2Y-8000i Yn (Natural level of output) = 1200 Using the above information, answer the following. Derive the IS and LM equations. (a) (b) (c) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? Suppose that real money supply (M/P) increases to 2800. Calculate the new equilibrium output (Y) and the new equilibrium interest rate (i). Did the economy arrive at the natural level of output? Explain why or why not? (d) If your answer to part "c" above is no, is there an alternative policy that can help the economy arrive at the natural level of output? Does the alternative policy have limits? Explain.

7) Suppose an economy is given by the following equations: C = 150+ 0.25Yd I= 150 +0.25Y - 1000i G = 250 T = 200 Yd=Y-T (M/P) = 1400 Y L(i)=2Y-8000i Yn (Natural level of output) = 1200 Using the above information, answer the following. Derive the IS and LM equations. (a) (b) (c) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? Suppose that real money supply (M/P) increases to 2800. Calculate the new equilibrium output (Y) and the new equilibrium interest rate (i). Did the economy arrive at the natural level of output? Explain why or why not? (d) If your answer to part "c" above is no, is there an alternative policy that can help the economy arrive at the natural level of output? Does the alternative policy have limits? Explain.

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

7) Suppose an economy is given by the following equations:
C = 150 +0.25Yd
I= 150 +0.25Y - 1000i
G = 250
T = 200
Yd=Y-T
(M/P) = 1400
Y L(i)=2Y - 8000i
Yn (Natural level of output) = 1200
Using the above information, answer the following.
Derive the IS and LM equations.
(a)
(b)
Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom?
Suppose that real money supply (M/P) increases to 2800. Calculate the new equilibrium
output (Y) and the new equilibrium interest rate (i). Did the economy arrive at the natural level
of output? Explain why or why not?
(d) If your answer to part "c" above is no, is there an alternative policy that can help the
economy arrive at the natural level of output? Does the alternative policy have limits? Explain.

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