Just need help with the questions after C a) Derive the IS curve.b) What happens to the IS curve if G increases by AG = 100 financed with a correspondingincrease in T by AT = 100? Why? Does the slope of IS curve changes? Does such policylead to the shift of IS curve?c) What happens to the IS curve if the marginal propensity to consume (MPC) suddenlyjumps to 0.6? Why? Does the slope of IS curve changes? Does such this lead to the shiftof IS curve?d) Derive the LM curve.e) Find the equilibrium values of Y and r.) The central bank wants to increase GDP by 20 by changing the money supply. Whatshould be the new real money supply?g) Suppose the demand for money becomes less sensitive to changes in the interest rate.What should happen to the money demand equation provided above? What would changein that equation and in what direction? Would that make the fiscal or the monetary policymore potent? Would you recommend a fiscal or a monetary policy to get the economyout of recession? Provide two graphs showing how an expansionary fiscal and monetarypolicy, respectively, work an extreme case of zero money demand sensitivity. Consider an economy characterized by the following goods and services market:C = 200 + 0. 5 (Y – T)I= 150 – 5rG = 200T = 100And the following money market:= 0.25Y – 0.5rM*235

Answered: Image /qna-images/answer/ccd7050e-1bb7-4bfe-80bf-9e0998eb4b15.jpg

Answered: c) What happens to the IS curve if the…

c) What happens to the IS curve if the marginal propensity to consume (MPC) suddenly jumps to 0.6? Why? Does the slope of IS curve changes? Does such this lead to the shift of IS curve?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Just need help with the questions after C

a) Derive the IS curve.
b) What happens to the IS curve if G increases by AG = 100 financed with a corresponding
increase in T by AT = 100? Why? Does the slope of IS curve changes? Does such policy
lead to the shift of IS curve?
c) What happens to the IS curve if the marginal propensity to consume (MPC) suddenly
jumps to 0.6? Why? Does the slope of IS curve changes? Does such this lead to the shift
of IS curve?
d) Derive the LM curve.
e) Find the equilibrium values of Y and r.
) The central bank wants to increase GDP by 20 by changing the money supply. What
should be the new real money supply?
g) Suppose the demand for money becomes less sensitive to changes in the interest rate.
What should happen to the money demand equation provided above? What would change
in that equation and in what direction? Would that make the fiscal or the monetary policy
more potent? Would you recommend a fiscal or a monetary policy to get the economy
out of recession? Provide two graphs showing how an expansionary fiscal and monetary
policy, respectively, work an extreme case of zero money demand sensitivity.

Consider an economy characterized by the following goods and services market:
C = 200 + 0. 5 (Y – T)
I= 150 – 5r
G = 200
T = 100
And the following money market:
= 0.25Y – 0.5r
M*
235

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