TitleIf someone could show me how to solve this IS-LM problem that would be very helpful. Thanks! Show tr DescriptionIf someone could show me how to solve this IS-LM problem that would be very helpful. Thanks! Show transcribed image text Desired consumption:C^d = 580 + [0.55 x (Y - T)] - 45rDesired investment: I^d = 430 - 40rReal money demand: L = 0.6 Y - 95iFull-employment output: Y = 2,210Expected inflation pi^c : 0.03In this economy the government always has a balanced budget, so T = G, where T is total taxes collected.a. Suppose that T = G = 150 and that M = 4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (flint: In the classical model output always equals its full-employment level.)The equations are: The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be: Output = 2,210 Real interest rate = 0.97 Consumption = 1,669.4 Investment = 391.2 Price level = 3.51 b. Suppose that the money supply changes to M = 4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and the price level. Real rate of interest, r = Consumption = Investment = Price, P = Desired consumption: Cd = 580 + [0.55 x (Y– T)]– 45r1d = 430 – 40rDesired investment:Real money demand:Full-employment output: Y = 2,210Expected inflation:L= 0.6Y-95iT° = 0.03In this economy the government always has a balanced budget, so T = G, where Tis total taxes collected.a. Suppose that T = G=150 and that M= 4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (Hint: In the classical model output always equalsits full-employment level.) The equations are:IS: Y=2,394 – 189rLM: Y = 5 + 7,200+ 158rThe initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be:Output = 2,210Real interest rate = 0.97Consumption = 1,669.4Investment = 391.2Price level = 3.51b. Suppose that the money supply changes to M= 4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and theprice level.Real rate of interest, r=(Enter your response rounded to two decimal places.)Consumption(Enter your response rounded to one decimal place.)Investment =. (Enter your response rounded to one decimal place.)Price, P =(Enter your response rounded to two decimal places.)

The consumption function is given as The desired Investment level is given as The real money demand…

Desired consumption: C=580+ [0.55 ×(y-7)]-45r Desired investment: Real money demand: Full-employment output: Y = 2,210 Expected inflation: π = 0.03 In this economy the government always has a balanced budget, so T = G, where T is total taxes collected. a. Suppose that T =G=150 and that M=4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (Hint: In the classical model output always equals its full-employment level.) The equations are: IS: Y=2,394-189r LM: Y = 5+7,200 Id=430-40r L=0.6Y-95i 200 (+/-) + + 158r The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be: Output = 2,210 Real interest rate=0.97 Consumption = 1,669.4 Investment = 391.2 Price level = 3.51 Investment = b. Suppose that the money supply changes to M=4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and the price level. Real rate of interest, r= (Enter your response rounded to two decimal places.) Consumption = (Enter your response rounded to one decimal place.) (Enter your response rounded to one decimal place.) Price, P=. (Enter your response rounded to two decimal places.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

Title

If someone could show me how to solve this IS-LM problem that would be very helpful. Thanks! Show tr

Description

If someone could show me how to solve this IS-LM problem that would be very helpful. Thanks!

Show transcribed image text Desired consumption:

C^d = 580 + [0.55 x (Y - T)] - 45r

Desired investment: I^d = 430 - 40r

Real money demand: L = 0.6 Y - 95i

Full-employment output: Y = 2,210

Expected inflation pi^c : 0.03

In this economy the government always has a balanced budget, so T = G, where T is total taxes collected.

a. Suppose that T = G = 150 and that M = 4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (flint: In the classical model output always equals its full-employment level.)

The equations are: The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be: Output = 2,210 Real interest rate = 0.97 Consumption = 1,669.4 Investment = 391.2 Price level = 3.51 b. Suppose that the money supply changes to M = 4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and the price level. Real rate of interest, r = Consumption = Investment = Price, P =

Desired consumption: Cd = 580 + [0.55 x (Y– T)]– 45r
1d = 430 – 40r
Desired investment:
Real money demand:
Full-employment output: Y = 2,210
Expected inflation:
L= 0.6Y-95i
T° = 0.03
In this economy the government always has a balanced budget, so T = G, where Tis total taxes collected.
a. Suppose that T = G=150 and that M= 4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (Hint: In the classical model output always equals
its full-employment level.) The equations are:
IS: Y=2,394 – 189r
LM: Y = 5 + 7,200
+ 158r
The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be:
Output = 2,210
Real interest rate = 0.97
Consumption = 1,669.4
Investment = 391.2
Price level = 3.51
b. Suppose that the money supply changes to M= 4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and the
price level.
Real rate of interest, r=(Enter your response rounded to two decimal places.)
Consumption
(Enter your response rounded to one decimal place.)
Investment =. (Enter your response rounded to one decimal place.)
Price, P =
(Enter your response rounded to two decimal places.)

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 11 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

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.