Question 2 Assume the following model of a closed economy, with the price level P fixed at 1.0 C= 0.6 (Y – T) I = 500 – 50r Mg = 450 T = 200 G = 250 Mp = 2Y – 200r Where C is consumption, Y is output, T is taxes, I is investment, r is the interest rate, G is government spending, Mş is the money supply, and Mp is money demand. a) Derive formulas for the IS and LM schedules, showing Y as a function of r alone. b) Calculate the short-run equilibrium values of Y, C, I, and r. c) Suppose that the central bank doubles the money supply to 900. Draw a diagram, and explain in words what will happen. Find the new values of Y, r, and I.

Question 2 Assume the following model of a closed economy, with the price level P fixed at 1.0 C= 0.6 (Y – T) I = 500 – 50r Mg = 450 T = 200 G = 250 Mp = 2Y – 200r Where C is consumption, Y is output, T is taxes, I is investment, r is the interest rate, G is government spending, Mş is the money supply, and Mp is money demand. a) Derive formulas for the IS and LM schedules, showing Y as a function of r alone. b) Calculate the short-run equilibrium values of Y, C, I, and r. c) Suppose that the central bank doubles the money supply to 900. Draw a diagram, and explain in words what will happen. Find the new values of Y, r, and I.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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