Consider the following IS-LM model: C=200+0.25Yd I=150+0.25Y-1000i G=250 T=200 Real Money Demand=M/P=2Y-8000i Real Money Supply=1600 a. Derive the IS relation. b. Derive the LM relation. c. Solve for equilibrium real output and interest rate and show it in a graph, draw IS and LM curves.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Consider the following IS-LM model:
C=200+0.25Yd
I=150+0.25Y-1000i
G=250
T=200
Real Money Demand=M/P=2Y-8000i
Real Money Supply=1600
a. Derive the IS relation.
b. Derive the LM relation.
c. Solve for equilibrium real output and interest rate and show it in a graph, draw IS and LM curves.
d. Solve for values of C, G and I and verify that they add up to Y you obtained in part c.
e. Now suppose that the money supply increases to M/P=1840. Solve for Y, i, C and I and describe in
words the effects of an expansionary monetary policy. Show the change in a graph.
f. Set M/P to its initial value of 1600. Now suppose that government spending increases to G=400.
Summarise the effects of an expansionary fiscal policy on Y, i, C. Use a graph to show the shift in IS
and/or LM.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 1 images

Blurred answer
Knowledge Booster
Central Bank
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education