Assume the following model of the closed economy in the short run, with the price level (P) fixed at 1.0: C=0.5(Y-T) T=1000 I=1500-250r G=1500 Md/p=0.5Y-500r Ms=1000 a) Derive a numerical formula for the IS curve, showing Y as a function of r alone. B)Derive a numerical formula for the LM curve, showing Y as a function of r alone. C) What are the short-run equilibrium values of Y, r, and national saving (S)?d)Assume that G increases by 1,500 (i.e., G = 3; 000). By how much will Y increase in short-run equilibrium? e)You are the chief economic adviser in this hypothetical economy. Do you believe that fiscal policy is more potent than monetary policy? Briefly discuss
Assume the following model of the closed economy in the short run, with the price level (P) fixed at 1.0:
C=0.5(Y-T)
T=1000
I=1500-250r
G=1500
Md/p=0.5Y-500r
Ms=1000
a) Derive a numerical formula for the IS curve, showing Y as a function of r alone.
B)Derive a numerical formula for the LM curve, showing Y as a function of r alone.
C) What are the short-run equilibrium values of Y, r, and national saving (S)?d)Assume that G increases by 1,500 (i.e., G = 3; 000). By how much will Y increase in short-run equilibrium?
e)You are the chief economic adviser in this hypothetical economy. Do you believe that fiscal policy is more potent than
f)Derive the numerical aggregate demand (AD) curve for this economy, expressing Y as a function of P
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