Consider the following IS-LM model: ? = 200 + 0.25?? ? = 150 + 0.25? − 1,000? ? = 250 ? = 200 (?/?)? = 2? − 8,000? ?/? = 1,600 a. Derive the IS relation. (Hint: You want an equation with ? on the left side and everything else on the right.) b. Derive the LM relation. (Hint: It will be convenient for later use to rewrite this equation with ? on the left side and everything else on the right.) c. Solve for equilibrium real output. (Hint: Substitute the expression for the interest rate given by the LM equation into the IS equation and solve for output.)

Consider the following IS-LM model: ? = 200 + 0.25?? ? = 150 + 0.25? − 1,000? ? = 250 ? = 200 (?/?)? = 2? − 8,000? ?/? = 1,600 a. Derive the IS relation. (Hint: You want an equation with ? on the left side and everything else on the right.) b. Derive the LM relation. (Hint: It will be convenient for later use to rewrite this equation with ? on the left side and everything else on the right.) c. Solve for equilibrium real output. (Hint: Substitute the expression for the interest rate given by the LM equation into the IS equation and solve for output.)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter1: Welcome To Economics!

Section: Chapter Questions

Problem 26CTQ: Suppose, as an economist, you are asked to analyze an issue unlike anything you have ever done...

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EXERCISE 3.5 1. Given the following model: Y = C÷lo+Go C = a + b(YT) (a> 0, T = d+tY (d>0, 0 0, 0