Assume the following model of the economyC = 60 +0.75(Y – T)I = 45 – 5rG = 40 and T = 40MS110P = 1 (fixed)(M/P)D = 0.5Y – 5r,-where C=consumption spending, Y=income,|=investment spending, r=the interest rate,G=government spending, T=taxes. MS=the moneysupply, P=the price level, and (M/P)D is realmoney demand.(a) Write the equations for the IS and LM curves andsketch these functions. Solve for the equilibriumvalues of Y and r and include these values in thegraph.

IS - LM curves refers that investment savings-liquidity preference-money supply , these curves show…

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Assume the following model of the economy C = 60 + 0.75(Y – T) I = 45 – 5r G = 40 and T = 40 M$ = 110 P =1(fixed)

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

Assume the following model of the economy
C = 60 +0.75(Y – T)
I = 45 – 5r
G = 40 and T = 40
MS
110
P = 1 (fixed)
(M/P)D = 0.5Y – 5r,
-
where C=consumption spending, Y=income,
|=investment spending, r=the interest rate,
G=government spending, T=taxes. MS=the money
supply, P=the price level, and (M/P)D is real
money demand.
(a) Write the equations for the IS and LM curves and
sketch these functions. Solve for the equilibrium
values of Y and r and include these values in the
graph.

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