just b, c and d please. The IS/LM model.Consider an economy where the demand for goods is given by:Z = a₁ + a₂Y - azi,and the demand for money is given by:Md = bịY — bại.The supply of money is given by M*. Assume that prices are fixed, and all firms are identicaland willing to supply any demand for goods. The parameters of the model, (ao, a1, a2, b1, b2,M*), are all assumed to be positive.(a) Find the equilibrium level of output for this economy.(b) Suppose the government increases its spending by 1 unit. Which of the model'sparameters, (ao, ai, a2, b1, b2, M*), will change and why?(c) In (b), how much does equilibrium output increase?(d) The IS multiplier is given by1-q₁and provide an intuitive explanationShow that the multiplier in (c) is less than thisas to why this is.

Goods Market : (IS relation ) - Depicts the equilibrium points in goods market .Money Market : (LM…

Answered: Consider an economy where the demand…

Consider an economy where the demand for goods is given by: Z = a₁ + a₂Y - a₂i, and the demand for money is given by: Md = bịY — bại.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Problem 1QTC

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Question

just b, c and d please.

The IS/LM model.
Consider an economy where the demand for goods is given by:
Z = a₁ + a₂Y - azi,
and the demand for money is given by:
Md = bịY — bại.
The supply of money is given by M*. Assume that prices are fixed, and all firms are identical
and willing to supply any demand for goods. The parameters of the model, (ao, a1, a2, b1, b2,
M*), are all assumed to be positive.
(a) Find the equilibrium level of output for this economy.
(b) Suppose the government increases its spending by 1 unit. Which of the model's
parameters, (ao, ai, a2, b1, b2, M*), will change and why?
(c) In (b), how much does equilibrium output increase?
(d) The IS multiplier is given by
1-q₁
and provide an intuitive explanation
Show that the multiplier in (c) is less than this
as to why this is.

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Step 1: Define IS-LM Model

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Step 2: Derive the change in parameter and equilibrium output

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Step 3: Compare original and new multipliers

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