Suppose the economy of Ghana in 2020 was characterized by C = ¢400m + 0.75(Y-T); I = ¢400m - 20r; G = ¢200m; T = ¢200m; Ms = ¢250m/P; Md = 0.25Y - 10r a. Derive the IS and LM curve equations. Give a brief explanation as to why they are positively or negatively sloped. b. Calculate equilibrium output and interest rates (in this case assume P=1). Econ313 2020/2021 PROBLEM SET 2 Page 2 of 2 c. Suppose the government of Ghana in the second half of 2020 spent an additional ¢50m to mitigate the impact of the COVID pandemic on households and businesses and government tax revenue declined by 10% as a result of the lockdown in Ghana what will be the new equilibrium output?
Suppose the economy of Ghana in 2020 was characterized by
C = ¢400m + 0.75(Y-T); I = ¢400m - 20r; G = ¢200m; T = ¢200m;
Ms = ¢250m/P; Md = 0.25Y - 10r
a. Derive the IS and LM curve equations. Give a brief explanation as to why they are
positively or negatively sloped.
b. Calculate equilibrium output and interest rates (in this case assume P=1).
Econ313 2020/2021 PROBLEM SET 2 Page 2 of 2
c. Suppose the government of Ghana in the second half of 2020 spent an additional ¢50m to
mitigate the impact of the COVID pandemic on households and businesses and
government tax revenue declined by 10% as a result of the lockdown in Ghana what will
be the new equilibrium output?
d. Will the policy in (c) above have an impact on interest rate? Briefly explain.
e. What is the amount of the fiscal deficit incurred as a result of the government fiscal
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