Assume that the long-run level of output is Y=1000Y=1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C=100+0.8(Y−T¯),I=100−2000r,C=100+0.8(Y−T¯),I=100−2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M¯P=Y200i.M¯P=Y200i. The government is currently implementing a policy G¯=80,T¯=50G¯=80,T¯=50, and the central bank (CB) is supplying M¯=1000M¯=1000. Expected inflation is πe=0πe=0. Derive the IS curve. It should be written in the form Y=A−BiY=A−Bi, that is, you only need to solve for the values of A=A=Answer and B=B=Answer.
Assume that the long-run level of output is Y=1000Y=1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C=100+0.8(Y−T¯),I=100−2000r,C=100+0.8(Y−T¯),I=100−2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M¯P=Y200i.M¯P=Y200i. The government is currently implementing a policy G¯=80,T¯=50G¯=80,T¯=50, and the central bank (CB) is supplying M¯=1000M¯=1000. Expected inflation is πe=0πe=0. Derive the IS curve. It should be written in the form Y=A−BiY=A−Bi, that is, you only need to solve for the values of A=A=Answer and B=B=Answer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume that the long-run level of output is Y=1000Y=1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley,
C=100+0.8(Y−T¯),I=100−2000r,C=100+0.8(Y−T¯),I=100−2000r,
that is, MPC is 0.8. Furthermore, the LM (money
M¯P=Y200i.M¯P=Y200i.
The government is currently implementing a policy
G¯=80,T¯=50G¯=80,T¯=50,
and the central bank (CB) is supplying M¯=1000M¯=1000.
Expected inflation is πe=0πe=0.
Derive the IS curve. It should be written in the form Y=A−BiY=A−Bi, that is, you only need to solve for the values of A=A=Answer and B=B=Answer.
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