In this exercise we are going to derive IS-LM model of Intermediate Macroeco- nomics mathematically. Goods market: oon atonborg ow wo Y=C+I+Go C = Co + b(Y-T) I = Io - ar T=tY ommer ous noilgque anoitonsil viquque qui vollot where Y, C, I, I,r are income, consumption, investment, taxes, and interest rate respectively, and Co, Io are some constants. Money market: men vi aboog hodnot asiliana M₁ = kY - Br Ms = Mo Ma and Ms are money demand and money supply equations and Mo is a constant.

In this exercise we are going to derive IS-LM model of Intermediate Macroeco- nomics mathematically. Goods market: oon atonborg ow wo Y=C+I+Go C = Co + b(Y-T) I = Io - ar T=tY ommer ous noilgque anoitonsil viquque qui vollot where Y, C, I, I,r are income, consumption, investment, taxes, and interest rate respectively, and Co, Io are some constants. Money market: men vi aboog hodnot asiliana M₁ = kY - Br Ms = Mo Ma and Ms are money demand and money supply equations and Mo is a constant.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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In this exercise we are going to derive IS-LM model of Intermediate Macroeco-
nomics mathematically.
Goods market:
Y = C+I+Go
C = Co+b(Y-T)
I = Io - ar
T = tY
gift of gribtoon atouborq owl neat
where Y, C, I, T,r are income, consumption, investment, taxes, and interest rate
vel respectively, and Co, Io are some constants.
Money market:
diod
out quien vid abo
bonneer ous noilgque
anoitonnil viqqua guivollot
Tisman
fiam sit bai 1 (d
bosqiqqs xiitsm
MakY - Br
Ms = Mo
Ma and Ms are money demand and money supply equations and Mo is a constant.

ugno a) What are the endogenous and exogenous variables in goods market equations.
What are the parameters?
b)
Use goods market equations to find Y as a function of r. This is called IS
curve. Graph the IS curve
c) Using the money market equilibrium condition express Y as a function of r.
This is called LM curve. Graph the LM Curve
d) Graph the IS and the LM with r on the vertical axis and Y on the horizontal
axis. (Hint: Invert the two equations you derived for the IS and LM curves)

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