The commodity market for a simple economy is in equilibrium and when Y = C + | + G. The money market is in equilibrium when the supply of money (M) equals Demand for money (Md). Demand for money composes of transaction-precautionary demand for money (Mt) and the speculative demand for money (Ms). Assume the economy is characterised by the following information; C = 4800 + 0.8Yd T = 100, I = 1900 – 75i, G = 4000, M = 5000, Mt = 0.3Yd Ms = 100 – 15i a) Derive an expression to show the IS function b) Derive the LM function c) What values of Income and Interest rate provides for both the goods market and money market equilibrium in this economy d) Sketch the IS and LM curves for this economy. e) Outline four factors that cause a shift in the IS curve.

The commodity market for a simple economy is in equilibrium and when Y = C + | + G. The money market is in equilibrium when the supply of money (M) equals Demand for money (Md). Demand for money composes of transaction-precautionary demand for money (Mt) and the speculative demand for money (Ms). Assume the economy is characterised by the following information; C = 4800 + 0.8Yd T = 100, I = 1900 – 75i, G = 4000, M = 5000, Mt = 0.3Yd Ms = 100 – 15i a) Derive an expression to show the IS function b) Derive the LM function c) What values of Income and Interest rate provides for both the goods market and money market equilibrium in this economy d) Sketch the IS and LM curves for this economy. e) Outline four factors that cause a shift in the IS curve.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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