3. The following relationships describe the imaginary economy of Nineland: Y = C+I(Income identity) C = 90 + 0.9Y (Consumption) I= 900 – 900R (Investment) MDN = (0.9Y- 900R)P (Money demand) There are no taxes, government spending, or foreign trade in Nineland. The year is 1999 in Nineland. The price level is 1. The money supply is 900 in 1999. a) Sketch the IS curve and the LM curve for the year 1999 on a diagram and show the point where the interest rate and output are determined. b) What are the values of output and the interest rate in 1999? c) Show what happens if the money supply is increased by 90. d) Show what happens if the money supply is decreased by 90. a) How does an increase in the tax rate affect the IS curve? b) How does the increase affect the equilibrium level of income? c) How does the increase affect the equilibrium interest rate?

3. The following relationships describe the imaginary economy of Nineland: Y = C+I(Income identity) C = 90 + 0.9Y (Consumption) I= 900 – 900R (Investment) MDN = (0.9Y- 900R)P (Money demand) There are no taxes, government spending, or foreign trade in Nineland. The year is 1999 in Nineland. The price level is 1. The money supply is 900 in 1999. a) Sketch the IS curve and the LM curve for the year 1999 on a diagram and show the point where the interest rate and output are determined. b) What are the values of output and the interest rate in 1999? c) Show what happens if the money supply is increased by 90. d) Show what happens if the money supply is decreased by 90. a) How does an increase in the tax rate affect the IS curve? b) How does the increase affect the equilibrium level of income? c) How does the increase affect the equilibrium interest rate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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