Assume the following model of a closed economy: Y = C + I + GC = 120 + .5(Y – T)I = 100 – 10rG = 75T = 50(M/P)d = Y – 30rMs = 700P = 2 Derive the equation for the IS curve, showing Y as a function of r alone.Derive the equation for the LM curve, showing Y as a function of r alone.Graph both the IS and the LM curves.What are the equilibrium level of income and equilibrium interest rate? (Y = 584, r = 7.8)

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Assume the following model of a closed economy: Y = C + I + G C = 120 + .5(Y – T) I = 100 – 10r G = 75 T = 50 (M/P)d = Y – 30r Ms = 700 P = 2

MACROECONOMICS FOR TODAY

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Chapter8: The Keynesian Model

Section: Chapter Questions

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Question

Assume the following model of a closed economy:

Y = C + I + G

C = 120 + .5(Y – T)

I = 100 – 10r

G = 75

T = 50

(M/P)^d = Y – 30r

Ms = 700

P = 2

Derive the equation for the IS curve, showing Y as a function of r alone.
Derive the equation for the LM curve, showing Y as a function of r alone.
Graph both the IS and the LM curves.
What are the equilibrium level of income and equilibrium interest rate? (Y = 584, r = 7.8)

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