Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. c) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. d) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. c) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. d) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1. Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute:
a) The equilibrium interest rate and output (i*and Y*).
b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate.
c) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number.
d) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
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