7) Suppose an economy is given by the following equations: C = 100+ 0.75Yd I = 125 - 5i G = 100 T = 100 (M/P) = 50 Y L(i) = 0.1Y - 2i Yn = 525 (Yn is the natural level of output) Using the above information, answer the following. (a) Derive the IS and LM curves. (b) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? What policy should the Government (administration) pursue? Explain your answer specifically explaining what information leads you to think the economy is in a boom or a recession.

7) Suppose an economy is given by the following equations: C = 100+ 0.75Yd I = 125 - 5i G = 100 T = 100 (M/P) = 50 Y L(i) = 0.1Y - 2i Yn = 525 (Yn is the natural level of output) Using the above information, answer the following. (a) Derive the IS and LM curves. (b) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? What policy should the Government (administration) pursue? Explain your answer specifically explaining what information leads you to think the economy is in a boom or a recession.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter25: The Keynesian Perspective

Section: Chapter Questions

Problem 20CTQ: Suppose the economy is operating at potential GDP when It experiences an increase in export demand....

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Suppose the economy is operating at potential GDP when It experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?
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