Consider the following IS-LM model: C = 200 + 0.25 YD ; I = 150 + 0.25Y – 1000i ; G = 250 ; T = 200 ; (M/P)d = 2Y – 8000i ; M/P = 1600 Derive the (a) IS-relation and the (b) LM-relation. Solve for the equilibrium (c) real output and (d) interest rate. (e) Solve for the equilibrium values of C and I and verify your equilibrium output by: Y = C + I + G (f) Now suppose that the money supply increases to M/P = 1840. Solve for Y, i, C, I and describe in words the effects of monetary expansion. (g) Set M/P to its initial value 1600. Suppose, that government spending increases to G=400. Summarize the effects of fiscal expansion on Y, i, and C.
Consider the following IS-LM model: C = 200 + 0.25 YD ; I = 150 + 0.25Y – 1000i ; G = 250 ; T = 200 ; (M/P)d = 2Y – 8000i ; M/P = 1600 Derive the (a) IS-relation and the (b) LM-relation. Solve for the equilibrium (c) real output and (d) interest rate. (e) Solve for the equilibrium values of C and I and verify your equilibrium output by: Y = C + I + G (f) Now suppose that the money supply increases to M/P = 1840. Solve for Y, i, C, I and describe in words the effects of monetary expansion. (g) Set M/P to its initial value 1600. Suppose, that government spending increases to G=400. Summarize the effects of fiscal expansion on Y, i, and C.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the following IS-LM model:
C = 200 + 0.25 YD ; I = 150 + 0.25Y – 1000i ; G = 250 ;
T = 200 ; (M/P)d = 2Y – 8000i ; M/P = 1600
Derive the (a) IS-relation and the (b) LM-relation.
Solve for the equilibrium (c) real output and (d) interest rate.
(e) Solve for the equilibrium values of C and I and verify your
equilibrium output by: Y = C + I + G
(f) Now suppose that the money supply increases to M/P =
1840. Solve for Y, i, C, I and describe in words the effects
of monetary expansion.
(g) Set M/P to its initial value 1600. Suppose, that government
spending increases to G=400. Summarize the effects of
fiscal expansion on Y, i, and C.
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