Problem four Consider an economy described by the following equations: Cª = 300 + 0.75(Y – T) – 300r T = 100 + 0.2Y Įd = 200 – 200r L = 0.5Y – 500i %3D - Assume that G=600; M=133,200; rº=0.05; P=120 a) Derive the equation for the IS curve. Graph the IS equation b) Derive the equation for the LM curve. Graph the LM equation c) Find the short run equilibrium income and real interest rate. Illustrate the equilibrium graphically.
Problem four Consider an economy described by the following equations: Cª = 300 + 0.75(Y – T) – 300r T = 100 + 0.2Y Įd = 200 – 200r L = 0.5Y – 500i %3D - Assume that G=600; M=133,200; rº=0.05; P=120 a) Derive the equation for the IS curve. Graph the IS equation b) Derive the equation for the LM curve. Graph the LM equation c) Find the short run equilibrium income and real interest rate. Illustrate the equilibrium graphically.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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