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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 Financial market: I 18 200r IS: Y = 5 +0.72(Y - 18) +22+ 18 - 200r M 0.02 P Y 5000 LM: Money market 0.02 M P Answers Provided: 4. (a) 80.4, 4.77% = 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, Y 5000/ 2 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 Financial market: I 18 200r IS: Y = 5 +0.72(Y - 18) +22+ 18 - 200r M 0.02 P Y 5000 LM: Money market 0.02 M P Answers Provided: 4. (a) 80.4, 4.77% = 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, Y 5000/ 2 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
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 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 Money market 0.02 M P Answers Provided: 4. (a) 80.4, 4.77% Y (r- 5000 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 0.02 P Y 5000 2 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.
Transcribed Image Text: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 Money market 0.02 M P Answers Provided: 4. (a) 80.4, 4.77% Y (r- 5000 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 0.02 P Y 5000 2 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.
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