After writing down the Aggregate Expenditure (AE) equation of this economy, find the IS and LM equations, and mention the national income and the interest rate of this economy at the equilibrium level. Consider an economy with the following specifications.Consumption Expenditure(C)= 120 + 0.56YdTax Function(Tx)= 40 + 0.25YTransfer Payment(Tr)= 36Investment function(1)= 100 – 45iGovernment Expenditure(G)= 75Nominal money supply(M)= 300Price Level(P)= 5Money Demand(Md)= 0.9Y – 150i(Here, Yd stands for disposable income, Y is for National Income, i for interest rate and all otherfigures are in Rs. Million)

Consumption Function= 120+0.56Yd Tax Function= 40+0.25Y Transfer payment= 56 Investment function=…

Answered: Consider an economy with the following…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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After writing down the Aggregate Expenditure (AE) equation of this economy, find the IS and LM equations, and mention the national income and the interest rate of this economy at the equilibrium level.

Consider an economy with the following specifications.
Consumption Expenditure
(C)
= 120 + 0.56Yd
Tax Function
(Tx)
= 40 + 0.25Y
Transfer Payment
(Tr)
= 36
Investment function
(1)
= 100 – 45i
Government Expenditure
(G)
= 75
Nominal money supply
(M)
= 300
Price Level
(P)
= 5
Money Demand
(Md)
= 0.9Y – 150i
(Here, Yd stands for disposable income, Y is for National Income, i for interest rate and all other
figures are in Rs. Million)

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