Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9b2ccab5-2c74-48e4-8472-643efd5edd07%2Fe8fb3ead-a6a7-4710-b0a3-7dd134e3bb11%2F7er0jo4_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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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