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    • Thread Starter
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    Hi guys,

    Basically I'm trying to revise for my exam and my poor notetaking has caught up with me.

    I can follow the following question and answer but having difficulty understanding how the next step goes from:

    Y-0.6(Y)=.... to 0.4(Y)=....

    been racking my brain, looking through books all to no avail. Any clarity on this would be so very appreciated.. please

    The question: Consider the following numerical version of the IS-LM model:

    C = 400 + 0.6(Y)
    I = 700 – 40(i)
    G = 100
    L = 0.5(Y) – 750(I) (money demand)
    M = 500 (money supply)


    IS schedule:

    Y = C + I + G
    Y = 400 + 0.6(Y) + 700 – 40(i) + 100
    Y - 0.6(Y) = 400 + 700 + 100 – 40(i)
    0.4(Y) = 1,200 – 40(i)
    Y = (1,200/0.4) – (40/0.4) × i
    Y = 3,000 - 100 × i


    xx
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    Another way to look at it is:

    Y - 0.6Y = (1-0.6)Y = 0.4Y, as 1 - 0.6 = 0.4 Just a bit of algebra really! I hope that answers your question, if it doesn't let me now though
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    Get a factor of Y out and then it should make sense....
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    OMG the clouds have lifted and clarity has prevailed. Thankyou both so so much for the prompt replies, I cannot believe I've spent almost all afternoon trying to figure it out in my own weird way and it was so simple.

    That's fantastic, really really appreciate that guys If I could e-buy you a drink for that trust me I would. You're my new heroes

    xx
 
 
 
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