2. Consider a Keynesian IS-LM model for national income:Y = C(Y-T) + I (r) + GL(r,Y)= M³IS:LM:where we consider Y and r as the endogenous variables and G, M³, and T as theexogenous variables.(a)Find the effect of a lump-sum tax, T, change on Y, i.e., OY/OT, using theimplicit function theorem.

Answered: Consider a Keynesian IS-LM model for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Consider a Keynesian IS-LM model for national income:
Y = C(Y-T) + I (r) + G
L(r,Y)= M³
IS:
LM:
where we consider Y and r as the endogenous variables and G, M³, and T as the
exogenous variables.
(a)
Find the effect of a lump-sum tax, T, change on Y, i.e., OY/OT, using the
implicit function theorem.

Expert Solution

Step 1

IS relation depicts the locus of of points at which goods market is in equilibrium .

LM relation represents the locus of points at which money market is in equilibrium . Intersection of these two curves provide short term equilibrium point in economy .

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