Question 4. The short run: from IS/LM to aggregate demand An economy is as follows Goods market: slc=5 MPC=0.72 Go=20, T=18 LM: = Financial market: I = 18-200r 0.02 Money market 0.02 M=40, P=2 (a) In the long-term equilibrium before shocks and policies, the expenditure is Y=74, r=4.65, and P=2. Given the IS/LM equations, IS: Y = 5 +0.72(Y− 18) + 22 + 18 - 200r M P M P Y (r. 5000 Y 5000 The government spending changes to G₁=22. Find the new very short run equilibrium output. (b) Graph the comparative statics (before and after) of the very short run equilibrium in terms of IS/LM and, on a separate graph, in terms of the AD curve. Label all axes, curves, and values. Note: you can but do not need to calculate the new equilibrium interest rate. While graphing AD, remember the definition of the very short run.

Question 4. The short run: from IS/LM to aggregate demand An economy is as follows Goods market: slc=5 MPC=0.72 Go=20, T=18 LM: = Financial market: I = 18-200r 0.02 Money market 0.02 M=40, P=2 (a) In the long-term equilibrium before shocks and policies, the expenditure is Y=74, r=4.65, and P=2. Given the IS/LM equations, IS: Y = 5 +0.72(Y− 18) + 22 + 18 - 200r M P M P Y (r. 5000 Y 5000 The government spending changes to G₁=22. Find the new very short run equilibrium output. (b) Graph the comparative statics (before and after) of the very short run equilibrium in terms of IS/LM and, on a separate graph, in terms of the AD curve. Label all axes, curves, and values. Note: you can but do not need to calculate the new equilibrium interest rate. While graphing AD, remember the definition of the very short run.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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