1. Suppose IS curve is Y = 4500-100i and Y = 2000+250i is the LM curve. a) Compute i and Y. Compute the same using Cramer's rule b) If government spending rose by 100m with an immediate impact elasticity of 2.5 for the goods market, determine the new IS curve. Explain goods market dynamics. c) Suppose government borrowed from the domestic financial market. Determine the impact of expansionary fiscal policy on interest rate. Hint: use di/dA = 0.02 %3D

1. Suppose IS curve is Y = 4500-100i and Y = 2000+250i is the LM curve. a) Compute i and Y. Compute the same using Cramer's rule b) If government spending rose by 100m with an immediate impact elasticity of 2.5 for the goods market, determine the new IS curve. Explain goods market dynamics. c) Suppose government borrowed from the domestic financial market. Determine the impact of expansionary fiscal policy on interest rate. Hint: use di/dA = 0.02 %3D

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.4P

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