answer 5.3 & 5.4 5. Consider the extended IS-LM model that allows for net exports:C=15+0.8(YT)T-25 +0.25YI= 10-RG = GoX = 40 -0.1Y,(system 5. A)where C is consumer expenditure, T is tax revenue, Y is aggregate output, I is investmentexpenditures (and Io is the exogenous part of investment), R is the interest rate, G = Go is theexogenous government expenditure, and X is net exports.The money market (the LM part of the model) is described byMD = 5Y-50RMş = 1500,(system 5. B)where Mp and Ms are demand and supply for money, respectively.Also, let the following aggregate expenditure function hold:E(Y, R)=C+I+G+ X,and suppose that in equilibrium, aggregate income Y equals aggregate expenditure E(Y, R),i..e, Y = E(Y, R) (which is incidentally also the national income accounting identity):Y=C+I+G+ X.(equation 5.C) 5.1. Using system 5. A and equation 5. C, derive the IS curve (Hint: You wouldeffectively derive a linear expression for Y in terms of Go, Io, and R. No need to use linearalgebra for this item.).5.2. Using system 5. B, derive the LM curve (Hint: You would effectively derive alinear expression for Y in terms of R. No need to use linear algebra for this item.).5.3. Construct a linear system of two equations based on your answers in items 5.1and 5.2 (Please place all expressions with Y and R on the left-hand side.).5.4. Transform the system you constructed in item 5.3 into a matrix equation Ax = b,= []; and then find the equilibrium values Y* and R* using matrix inversion.with x =

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5.1. Using system 5. A and equation 5. C, derive the IS curve (Hint: You would effectively derive a linear expression for Y in terms of Go, Io, and R. No need to use linea algebra for this item.). 5.2. Using system 5. B, derive the LM curve (Hint: You would effectively derive linear expression for Y in terms of R. No need to use linear algebra for this item.). 5.3. Construct a linear system of two equations based on your answers in items 5. and 5.2 (Please place all expressions with Y and R on the left-hand side.). 5.4. Transform the system you constructed in item 5.3 into a matrix equation Ax = b = []; and then find the equilibrium values Y* and R* using matrix inversion. with x =

5.1. Using system 5. A and equation 5. C, derive the IS curve (Hint: You would effectively derive a linear expression for Y in terms of Go, Io, and R. No need to use linea algebra for this item.). 5.2. Using system 5. B, derive the LM curve (Hint: You would effectively derive linear expression for Y in terms of R. No need to use linear algebra for this item.). 5.3. Construct a linear system of two equations based on your answers in items 5. and 5.2 (Please place all expressions with Y and R on the left-hand side.). 5.4. Transform the system you constructed in item 5.3 into a matrix equation Ax = b = []; and then find the equilibrium values Y* and R* using matrix inversion. with x =

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 7QP

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