Consider the following equations for a small open economy for both the goods and money markets. Goods Market: C = 3000 + 0.8Yd; T = 1000 + 0.3Y; G = 6000; TR = 500; I = 4000 + 0.24Y – 100r; M = 3000 + 0.2Y; X = 2000. Money market: LP = 1000 + 0.15Y; LT = 2000 + 0.25Y – 15r; Ls = 1000 – 35r; MS = 40,000; P= 4 a. Derive both the IS and LM equations for the economy and compute the Equilibrium level of Income and Interest Rate.
Consider the following equations for a small open economy for both the goods and money markets.
Goods Market: C = 3000 + 0.8Yd; T = 1000 + 0.3Y; G = 6000; TR = 500; I = 4000 + 0.24Y – 100r; M = 3000 + 0.2Y; X = 2000.
a. Derive both the IS and LM equations for the economy and compute the Equilibrium level of Income and Interest Rate.
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Suppose the government undertook a fiscal policy by increasing government expenditure by 20 percent. Clearly demonstrate how this would result in the crowding out phenomena.
c. Suppose the instead of fiscal policy, the government, through its monetary authority undertook an expansionary
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