Suppose that the following system of equations describe the macroeconomy of a hypothetical country: Y= C(y)+I(i)+G : IS or goods market M/p=L(i,y) : LM or money market b) Taking money supply and government expenditure as exogenous and the price level as fixed, determine and provide economic intuition for the signs and magnitudes of the following multipliers dY/dG and di/dG c) For a simultaneous increase in both the interest elasticity of investment and interest elasticity demand for money parameters, determine the net effect on the values of the multipliers in part b). d) For a horizontal LM curve, determine the numerical values of your answers in part b) above if: Marginal propensity to consume=5/6 Tax rate=0.25 Interest elasticity of investment=5 Interest elasticity of demand for money=50 Income elasticity of demand for money=2
answer c and d
Suppose that the following system of equations describe the macroeconomy of a
hypothetical country:
Y= C(y)+I(i)+G : IS or goods market
M/p=L(i,y) : LM or money market
b) Taking money supply and government expenditure as exogenous and the price
level as fixed, determine and provide economic intuition for the signs and
magnitudes of the following multipliers
dY/dG and
di/dG
c) For a simultaneous increase in both the interest elasticity of investment and
interest elasticity
values of the multipliers in part b).
d) For a horizontal LM curve, determine the numerical values of your answers in
part b) above if:
Marginal propensity to consume=5/6
Tax rate=0.25
Interest elasticity of investment=5
Interest
Income elasticity of demand for money=2
answer c and d only
Step by step
Solved in 4 steps
