Assuming the following model of a hypothetical economy:
a. Write a numerical formula for IS Curve showing Y as a function of r.
b. Define the LM curve and write down its numerical formula.
c. Calculate short-term equilibrium levels of Y, r, C, and I. Does investment equal national saving at
d. Suppose that G increases by 200, what will be the change in Y? What is the government purchase
e. Suppose that G is back to its original level and Ms
increased by 200, what will be the short-run
change in Y? What is the money supply multiplier?
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- Thread Starter
- 14-02-2016 04:33
- 14-02-2016 14:24
a. IS : Y= 5(1000-20r)
b. LM : Y = 100r+30000
c. r=10 / Y=4000 / C=2400 / I=600
d. Y=4500 (dY=500)
e. Y=4250 (dY=250)
In d. Y changes less than it was supposed to be (multiplier times change in autonomous component or G) as interest rates rises which crowds out investment,